Bloomberg News

Novartis to Cut 2,000 Swiss, U.S. Jobs, Add Staff in China

October 25, 2011

(Updates with closing share price in eighth paragraph.)

Oct. 25 (Bloomberg) -- Novartis AG, Europe’s second-biggest pharmaceutical company, plans to eliminate 2,000 jobs in Switzerland and the U.S. and add employees in China and India to offset the effect of drug-price reductions.

The cuts, equal to 1 percent of Novartis’s workforce, will be implemented over three to five years, and will generate annual savings of more than $200 million, the Basel, Switzerland-based company said in a statement today. Novartis will close a plant in Nyon, Switzerland, that makes over-the- counter drugs, and chemical sites in Basel and Torre, Italy, and plans a fourth-quarter charge of about $300 million.

Chief Executive Officer Joe Jimenez has been reducing costs since he took the top job in February 2010. Government austerity measures in Europe have forced Novartis to lower prices by about 5 percent this year, he said on a call with reporters as the company announced that third-quarter profit rose 12 percent.

“Job cuts are happening in almost all large pharma companies,” said Tim Race, an analyst at Deutsche Bank AG in London. “It’s a consequence of squeezing prices, squeezing profitability. Pharma companies are reacting to maximize profitability, which is something they should be doing anyway.” He recommends buying Novartis shares.

Novartis will eliminate 1,100 jobs in Switzerland, with the balance in the U.S., Jimenez said. Some research will be moved to the U.S. from Switzerland, and reductions will be made in technical research and development, data management, clinical trial monitoring, drug safety and regulatory affairs. Novartis will add 700 positions in China and India in data management and trial monitoring, he said.

Drug Approval Delays

The company said in November it would cut 1,400 U.S. sales jobs. In March it said it would reduce operations in the U.K.

Novartis suffered a setback in its effort to develop new products to replace sales the company will lose to competition from generic drugs. Applications for U.S. approval of two experimental treatments for smoker’s cough, NVA237 and QVA149, will be delayed because additional data is needed, Novartis said. Vectura Group Plc, which licensed NVA237 to Novartis, fell 21 percent in London trading.

Novartis fell 3.3 percent to 50.10 Swiss francs in Zurich trading, the biggest drop since Aug. 10. The stock has declined 4.9 percent this year including reinvested dividends, compared with a 4.5 percent return for the Bloomberg Europe Pharmaceutical Index of 17 drugmakers.

Earnings Rise

Third-quarter earnings excluding some costs climbed to $3.54 billion, or $1.45 a share, from $3.15 billion, or $1.36 a share, a year earlier, Novartis said in the statement. That was in line with the average estimate of $1.44 a share from 19 analysts compiled by Bloomberg.

Sales of Gilenya, the multiple sclerosis pill approved in the U.S. in September 2010, were $153 million, up from $79 million in the second quarter. Diovan, Novartis’s best-selling blood pressure treatment, dropped 4 percent to $1.43 billion from a year earlier. It loses patent protection in Europe this quarter and in the U.S. next year. The cancer drug Gleevec, which starts to lose patent protection in 2014, rose 13 percent to $1.14 billion.

The smoker’s cough drugs are a key to offsetting lost revenue, said Mark Purcell, an analyst at Barclays Capital Group in London.

“The delay may actually be significant for the outlook,” he wrote in a note to clients today. “The company claims it can make up for patent losses with new and recently launched products. Between now and the loss of Diovan and Gleevec, only respiratory is big enough in our view to support that statement.”

Alcon’s Growth

Sales rose 18 percent to $14.8 billion, meeting the average prediction of $14.8 billion among 21 analyst estimates. Novartis said it expects full-year sales growth in the low double-digits excluding currency shifts. The company doesn’t forecast profit.

Alcon, which includes eye medicines and Ciba Vision contact lenses, generated revenue of $2.5 billion. That would have been an increase of 12 percent had Alcon been part of the company for all of last year’s third quarter.

The unit received a subpoena from the U.S. Department of Health and Human Services relating to a civil investigation of health-care fraud allegations, Novartis said in a regulatory filing.

The government is seeking documents relating to the marketing practices as well as the remuneration of health-care providers in connection with Alcon products including Vigamox, Nevanac, Omnipred, Econopred and surgical equipment, the company said. Alcon is cooperating with the investigation, Novartis said.

Further price cuts may affect Novartis less than its rivals because it relies on government reimbursement for about 55 percent of sales, compared with as much as 90 percent for “pure play” pharmaceutical companies, Jimenez said.

--Editors: Phil Serafino, Tom Lavell

To contact the reporter on this story: Simeon Bennett in Geneva at sbennett9@bloomberg.net

To contact the editor responsible for this story: Phil Serafino at pserafino@bloomberg.net


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