GlaxoSmithKline announced a £1.5 billion cost-cutting drive yesterday that includes plans to cut at least 5,000 jobs, close plants and outsource the manufacture of drugs that have gone off-patent.

Europe’s largest pharmaceuticals company gave the news as it reported a 7 per cent fall in third-quarter profits, led by weaker sales of Avandia, its controversial diabetes medicine, and increased competition from makers of generic drugs.

The company said that it aimed to cut £700 million from its cost base by 2010, including £350 million next year, by stripping out bureaucracy and reducing overcapacity.

It is understood to be planning to trim between 5 and 10 per cent of its 102,000-strong worldwide workforce and to close a similar proportion of its 99 sites.

JP Garnier, the company’s chief executive, said that the changes would make the company “fit for the future”. They would affect operations both overseas and in Britain, where the company employs about 20,000 across 23 sites.

“The world is not static,” said Dr Garnier, who added that the changes would allow the company to focus on development.

The three-year programme will cost £1.5 billion and will include a shift towards outsourced production of drugs whose patents have expired and “low-cost sourcing of materials” from manufacturers in India and Eastern Europe.

About 40 per cent of the cuts will come from Glaxo’s manufacturing operation and a similar proportion from marketing through the adoption of “new sales structures and selling techniques”.

A further 20 per cent will come from research, although no scientists are likely to be affected.

Glaxo is following similar moves by rival drug companies, including Astra-Zeneca and Pfizer.

Dr Garnier, who will be replaced next May by Andrew Witty, the group’s European chief, said that the company had accelerated an existing restructuring programme to cope with the dent in profits resulting from Avandia, the expiry of patents on drugs such as the antidepressant Wellbutrin and the chemotherapy drug Zofran, as well as a tougher regulatory environment.

“By making the changes we envision, GSK will be better placed to address the challenges we face in 2008 and be in a stronger position to create long-term value for patients and shareholders,” he said.

Glaxo said that pretax profits for the quarter fell to £1.88 billion, compared with £2 billion last year. Group revenues fell by 3 per cent to £5.5 billion during the quarter.

The company blamed the weaker performance on falling sales of Avandia, its second-bestselling medicine. In May, a report in the New England Journal of Medicine linked the drug with a 43 per cent increase in the risk of heart attacks.

GSK has rejected the findings of the report and has fought to restore the drug’s reputation, but it said that Avandia sales had fallen 38 per cent to £225 million during the quarter. That performance was partly offset by a 7 per cent rise in sales of Advair, its asthma drug, to £835 million and a 49 per cent rise in vaccine sales to £593 million.

The company also reported a 13 per cent rise in revenues from Valtrex, its herpes drug, to £229 million and added that results had been assisted by strong international sales, particularly in the huge, emerging Asian economies of China and India.

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