3/20/2005

At this time, GSK appears to be a poor risk for long term investing. Many companies find themselves defending several lawsuits at one time or another. GSK's current position however, gives new meaning to the term "From all sides".

Many investors know about the disputed 2.7 BILLION dollar Federal Tax bill GSK received in 2004. However, there are many more potential financial bombs hanging over GSK's collective heads.

The NY State Attorney General is bringing legal action as well. In June, 2004 the NYS Attorney General, Eliot Spitzer began legal action against GSK. While it is "only" 150 million, it can still set the precedent for the 'death of 1000 cuts'.

Then there is the recent FDA seizure of GSK products Paxil C/R and Augmenten. This action is unusual, and while the FDA occasionally closes a small plant, such action is unlikely with a large company like GSK. According to the FDA, the problem has been ongoing since 2002 - but GSK failed to act on the problem until the FDA had no choice but to close the plant and seize the bad drugs.

While I could cite legal actions all day, it is plain to see that GSK is facing considerable legal pressure. The biggest problem I see is the arrogant attitude of GSK toward all of the legal actions. They blew off the FDA for 2+ years, They are blowing smoke at the IRS, and GSK does not seem to take the New York State Attorney's office seriously.

GSK has some serious internal problems as well. The sales department is incredibly over inflated. There seems to be at least one salesman for every 2 doctors in the US. While GSK has many dedicated and professional sales representatives, I believe the "hiring war" with other pharmaceutical companies has led GSK to hire some lesser quality sales staff as well. A quick look at CafePharma will show you some of the most juvenile responses to legitimate questions you will ever see. I understand that GSK has part-time sales people (3 work days per week) that enjoy full benefits and a company car. This is great for the people that enjoy those perks, but I don't think it is really fiscally responsible. I question the high cost of representing products and delivering samples. Are 9,000 or so sales people REALLY necessary?

In addition to the "sell at any cost" approach, it appears that major cuts have been made on the R&D side of the house. Headhunters tell me there are a LOT of highly qualified R&D personnel from GSK looking for new employment. From upper management positions, all the way down to Clinical Trials monitors. The biggest gripe seems to be the elimination of "Tom", and the elimination of half of his managers, and support staff. There is also considerable unhappiness over a complete re-arrangement of site assignments - which has most monitors traveling out of state at least twice as much as before. Flying people all over the country is expensive - not just the cost of the airfare, but the labor hours as well. Whoever made the decision to turn R&D upside down should re-consider this decision. This decision could have disasterous effects on the "pipeline" of new drugs. A mass exodus in the field R&D personnel could easily slow down the progress of new drugs.

Tinkering with the flow of R&D is by far the biggest fiscal mistake, from the standpoint of long-term investing. Since it can take 15 years to develop new drugs, what they do right now effects that outcome. At this point in time, I can NOT recomend GSK for long term investments. If they manage to turn some of this around, I will post updates here as they develop.

Serious Investor

Serious Investor does research for private investors. Gathering information by various means, Serious Investor is not and never has been a GSK employee. Many different sources are used to compile this information. Serious Investor offers this information for free, to aid in making sound, long term investments.