GSK to reduce yearly costs by £400m as H1 sales drop 1%

● Pharma group’s restructure to grow research spend ● H1 income down to £14.5bn while profits jump 25%

Pharma giant Glaxosmithkline has announced a major restructuring programme that will see it slash £400 million in annual costs in a bid to bolster research spending.

The group, whose 18 UK sites include Irvine and Montrose, said the savings would be delivered primarily through “supply chain optimisation” and a reduction of administrative costs.

The extra cash will be used to ramp up spending on research and development and to support new products. GSK said it will cost about £1.7 billion to 2021 to implement the programme.

The move deepens the mark to be left by chief executive Emma Walmsley, who joined the company last year and recently signed off on a $13bn (£9.2bn) deal to buy Novartis’ stake in its consumer healthcare joint venture, giving it full ownership of the division.

Walmsley said: “Innovation is the first of our three longterm strategic priorities I set out for GSK last year.

“Improving the performance of our pharmaceuticals business and strengthening our R&D pipeline is fundamental to this. Today, we have announced the start of a new approach to R&D, which aims to capitalise on the assets we have in our promising earlystage pipeline and build the next wave of growth for GSK.”

The announcement came as GSK unveiled its secondquarter results, with group sales coming in flat at £7.3bn, at actual exchange rates.

When accounting for the six months to 30 June, turnover fell 1 per cent to £14.5bn.

It swung to a pre-tax profit of £614m, up from a loss of £178m a year earlier in the second quarter, while half-year profits grew 25 per cent to £1.7bn.

Walmsley said the group had “deliveredencouragingresults across the company this quarter” and sales reflected a focus on drugs including single- pill Juluca for HIV, and its shingles preventative Shingrix.

She added: “With the recent new product launches, development of the new R&D approach and the successful buyout of the consumer business, we have evaluated the group’s cost base and what is required to deliver competitive long-term growth and performance in each of the group’s three businesses. “

GSK also announced a £300m equity investment in genetics testing company 23andme, and four-year collaboration with the business.

But Nicholas Hyett, equity analyst at Hargreaves Lansdown, said that despite some good news stories from GSK of late, “all is not quite what it seems”. “If Glaxo is forced to look at M&A to refresh the pipeline then investors will be grateful CEOS Andrew Witty and Emma Walmsley kept the consumer healthcare business in-house. The more predictable cash it provides could be key to funding the investment the group needs in the future.”