GSK Gives Up Incentives Linked to Zebulon Plant Expansion

Raleigh, N.C. — GlaxoSmithKline asked that the state terminate a contract under which the company would have received nearly $1.4 million in grants to add jobs at its pharmaceutical plant in Zebulon.

The company said it could not guarantee jobs it created would exist for the required 10 years.

At a meeting of the state’s Economic Investment Committee on Thursday, GSK (NYSE: GSK) asked that “we terminate their grant,” a Department of Commerce spokesperson said.

GSK could have received up to $1.39 million through a program known as a Job Development Investment Grant, or JDIG. Those grants are tied to new-job creation.

“We have not paid them any money,” the Commerce spokesperson said.

The Economic Investment Committee oversees the JDIG program.

GSK could still receive a $500,000 One North Carolina Fund grant, which requires a local match.

The facility manufactures a variety of drugs for the international pharmaceutical giant. GSK was scheduled to invest $92 million in expansion of the plant and add 200 jobs over four years under the agreement, which it signed in 2005.

Stefanie Mendell, a GSK spokesperson for manufacturing who is based in RTP, pointed out that the company had actually exceeded the capital investment commitment and that the additional jobs had been created.

“While we have hired 200 additional people, because of the current volume picture [for manufacturing] we could not project that we could retain the jobs for 10 years” as required by the grant, Mendell said. “We are projecting potential job losses.

“Even though technically we were in compliance, we would rather not take the money and have to give it back.”

JDIG grants are based on N.C. payroll taxes, a portion of which are rebated to recipient companies if they meet contractual commitments.

Some 20 products are manufactured at the plant, including the diabetes drug Avandia. GSK spent more than $100 million in upgrading the facility.

“Our commitment was to invest at least $92 million in capital, so we have actually surpassed that,” Mendell said.

GSK is forecasting reduced demand for production capacity due to a variety of reasons such as competition from generic drugs and a longer approval process by the U.S. Food and Drug Administration, she explained.

Avandia sales have also plummeted in recent months following reports of a possible link between it and heart attacks.

The company launched last fall a global restructuring plan in the wake of the Avandia situation, competition and a falling stock price. Some layoffs have occurred in GSK’s Triangle workforce.

“Over the last few months, we have eliminated temporary and contractor positions” in Zebulon, Mendell said. She could not provide an exact number. However, Mendell said no layoffs of “permanent staff” had taken place since 2003-2004.

GSK opened the Zebulon plant in 1983. GSK employs approximately 6,000 people in the Triangle. The company maintains one of its two U.S. headquarters in Research Triangle Park. The other is in Philadelphia.