Novartis to cut 2000 jobs, close several European plants

Novartis reported Tuesday alongside its third-quarter financial results that it will cut around 2000 jobs in Switzerland and the US in an effort "to improve productivity and to absorb pricing pressures." The company, which said it will also add 700 new employees in low cost and other countries, will eliminate 1100 positions in Switzerland with the remainder being lost in the US. The plan will be implemented over the next three to five years, and is expected to lead to annual savings of over $200 million.

The drugmaker indicated that as part of the restructuring it will close its site in Nyon, Switzerland, which manufactures over-the-counter medicines, as well chemical operations based in Basel and Torre, Italy. Novartis said it would scale back and outsource technical R&D, data management, clinical trial monitoring, drug safety and epidemiology and drug regulatory affairs, while some research activity will be moved from Switzerland to the US. The company noted that it will take a fourth-quarter charge of about $300 million related to the restructuring.

CEO Joe Jimenez remarked that "these actions are necessary to ensure that we adapt our organisation to continue delivering on our mission of bringing innovative new drugs to patients." Earlier this year, the company said it would cut 500 manufacturing jobs in the UK as part of its previously announced global review of operations.

Jimenez noted that austerity measures in Europe had forced the company to lower prices in the region by about 5 percent this year, adding that "we can't absorb these price cuts without taking action." He commented that "we really don’t know what’s going to happen [next year], but I wouldn’t anticipate the pricing environment, particularly in Europe, getting better any time soon." Jimenez explained that Novartis remains better placed than others to weather the price cuts, as reimbursements from government bodies account for only 55 percent of its sales, compared with an average of 80 percent to 90 percent among other pharmaceutical companies.

Novartis also reported Tuesday that third-quarter net income rose 7 percent to $2.5 billion, although the figure came in below analyst forecasts of $2.8 billion due to the Swiss currency's strength and drug price cuts. Sales in the three-month period jumped 18 percent to $14.8 billion, meeting analysts' predictions, boosted by a "strong performance" from recently launched products. Revenue from newly launched products grew 31 percent to $3.6 billion.

In the three-month period, pharmaceutical sales grew 9 percent year-on-year to $8.2 billion. Revenue from Diovan dropped 4 percent to $1.4 billion, which Novartis explained was due to "the first quarter entry of generic [versions] in select markets." The company noted that in the fourth quarter, the hypertension drug will lose marketing exclusivity in Europe. Meanwhile, Femara sales were also hit by "multiple generic entries in the US, Europe and other key markets," with the product recording a 47-percent decline in revenue to $182 million.

Revenue from Gleevec/Glivec rose 13 percent to $1.1 billion in the quarter, while sales of the next-generation drug Tasigna jumped 71 percent to $186 million compared to the same period last year. Revenue from Lucentis, which is marketed in the US by Roche, climbed 29 percent to $515 million, and sales of Zometa were 2-percent higher at $370 million. The drugmaker noted that "following successful launches in both the US and Europe," Gilenya posted quarterly sales of $153 million, with revenue in the former market "driving overall growth." The oral multiple sclerosis drug, which is licensed from Mitsubishi Tanabe Pharma, recently received approval in Japan.

Novartis also reported that quarterly sales from its Sandoz unit increased 6 percent versus the year-ago period to $2.3 billion. The company noted that growth in the division was "suppressed" by the launch in the same quarter last year of a generic version of Sanofi's Lovenox. In addition, revenue from the company's vaccines and diagnostics unit rose 4 percent to $655 million from a year earlier, and its eye-care unit Alcon posted sales of $2.5 billion, up 12 percent.

For the full year, Novartis said that it expects sales growth in the low double-digits, while pharmaceutical revenue is forecast to grow in the low- to mid-single digits.

Commenting on the figures, Bernstein analyst Tim Anderson said that "overall, third-quarter results were on the weaker side, but part of this was driven by [foreign exchange]."

The company also said Tuesday that US regulators have requested further clinical data on the company's experimental chronic obstructive pulmonary disease drug NVA237 (glycopyrronium bromide), potentially delaying its approval in the country. A marketing application for the agent, which is partnered with Vectura, was filed in Europe last month, where if cleared it will be sold as Seebri Breezhaler.

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