Swiss pharmaceutical specialist Novartis is to slash 2.5 per cent of its global workforce, aiming for annual savings of $1.6 billion (SFr1.81 billion) in 2010.This content was published on December 13, 2007 - 13:05
Novartis will cut another 2,500 jobs from its global total of 100,000, becoming the latest major drugmaker to undertake a deep restructuring. It is expected that 500 jobs will be lost in Switzerland, slightly more than four per cent of its local workforce.
The Basel-based firm said on Thursday it would take a charge of $450 million in the fourth quarter for the measures, which aim to combat price pressures on drugs, higher research costs, tighter regulations and more generic competition.
It said many cuts would be achieved through normal fluctuations – usually eight per cent annually - in staffing levels. The decision is not entirely unexpected after Novartis announced in October a review of its activities worldwide.
"It just shows investors again that the industry is in a very tough situation and that cost savings are required, but not necessarily the answer to all problems," said Denise Anderson, analyst at Landsbanki Kepler.
A lack of significant new drugs, declining sales of lucrative flagship franchises and fierce competition have set off a wave of restructuring in the industry, including the world's two biggest drug makers, Pfizer and GlaxoSmithKline.
"Given the number and size of patent expiries over the next five years, we certainly expect more cost-cutting measures from the industry," Anderson said.
The measures are considered part of Novartis' "Forward" programme that will simplify its organisation and decentralise the decision-making process. It is aimed at responding more rapidly to demand by concentrating resources on priority sectors, such as research and the development of new medications.
"We have taken the opportunity given the short-term down-cycle in our pharmaceuticals business to initiate this project," said Novartis CEO Daniel Vasella in a statement.
Planned changes include the streamlining of divisions, reorganising the sales force, and expanding into emerging markets in Africa, central and southeastern Asia.
Another focus will be the engineering of new drugs for diseases with "significant new opportunities", according to the company.
Novartis's latest cuts come just two months after it revamped its American drugs business, cutting 1,260 jobs to help generate annual savings of $230 million.
The company suffered a series of setbacks this year.
Key diabetes drug Galvus has been delayed because of safety concerns, painkiller Prexige was not granted approval by the US Food and Drug Administration, and Novartis also cut its full-year outlook after withdrawing Zelnorm, a treatment for irritable bowel syndrome, from US shelves in March.
The company's shares have fallen by more than nine per cent so far this year and on Thursday closed at SFr63.80, down 0.39 per cent from Wednesday's close.
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Q3 profit: $1.57 billion (-12%)
Q3 sales: $9.61 billion (+9%)
Business figures 2006:
Net profit: $7.20 billion
Full-year sales: $37.02 billion
Operating income: $8.2 billion
Organisational structures will be streamlined in corporate functions at Novartis as well as in the pharmaceutical and consumer health divisions.
In the pharmaceuticals division, the effectiveness of the worldwide sales forces will be improved with a more regional marketing approach.
The consumer health division will remove organisational layers, while some product supply chains will be restructured to optimise use of capacities.
The Novartis Institutes for BioMedical Research will focus on specific disease areas and review research activities to take advantage of synergies among disease areas and locations.
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