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GSK Earnings: $900M Spent on Lawyers; Silence on Job Cuts

By Jim Edwards

Updated on: February 4, 2010 / 10:39 AM EST / MoneyWatch

Every single employee at GlaxoSmithKline (GSK) held their breath for today's announcement of how many people would lose their jobs in the company's next round of cuts. There was just one problem: GSK didn't give a number.

It was a strange tactic given that since Feb. 1 everyone has assumed that up to 4,000 layoffs will be made. Silence on "The Number That Dare Not Speak Its Name" indicates either that GSK itself has not finished calculating it; or that management believes there's some sort of PR advantage to not actually saying out loud what everyone already knows. Here's the official word:

... we will continue to try to preserve jobs. As before, we will not be providing targets for job reductions and we will announce restructuring outcomes once employees, relevant works councils and trade unions have been consulted.

So, what details can we learn about job cuts at GSK? The Q4 2009 earnings release gives some details. More importantly, it describes the Â£500 million efficiency drive using this pretty graphic:

"Cost reduction" and "Simplification" both mean job cuts, in case you were wondering.

Vulnerable areas include R&D:

We have 'externalised' approximately 30% of GSK's discovery research. We are already conducting discovery research with 47 external partners. Our goal is to further increase the level of externally sourced compounds in our pipeline ...

... We are also looking to reduce R&D infrastructure costs.

And neuroscience:

Today, we have announced proposals to cease discovery research in selected neuroscience areas, including depression and pain.

There's a lot of stuff about the efficient allocation of capital, but downsized employees might be most enraged to learn about one of GSK's biggest unproductive expenses:

... full year legal charges of Â£591 million ...

How did GSK blow more than $900 million on lawyers? The company doesn't say(!). It's even more of a mystery because unlike AstraZeneca (AZN) or Eli Lilly (LLY), GSK doesn't have one of those disaster-prone blockbusters on its books (like Seroquel or Zyprexa) that has become a target for pile-on lawsuits.

Further detail on where job cuts might come from appeared on GSK's HR intranet (or, as it's known in the trade, CafePharma). One commenter said:

The Neurology and Psych/Metabolic R&D and commercial groups will be a significant part of the GSK theraputic area restructuring/downsize. Late stage products(phase 3)will be set up as teams reporting to Eddy, Deirdre or Hassin depending on the theraputic area. New products in US will be downsized. Golbal commercial will also change reporting structure.

The asthma drug Advair also appears vulnerable, GSK-ers say. Noting that GSK seems intent on "managing" its layoffs rather than actually canning people, another added:

The street says that 4 out of every 10 reps will be impacted.....2 fired, 2 offered a relocation or replacement, which in most cases with the family relo issue, the rep will most likely resign and the attrition component will play heavily on this massive downsizing we are about to embark on....