Telling the media it is trying to offset the effect ofdrug-price reductions, officials at Europe's second-largest pharmaceuticalcompany say the 2,000 cuts will be in Switzerland and the United States, withthe addition of some 700 employees in China and India—for a net loss of 1,300jobs.
Novartis will be giving walking papers to about 1 percent ofits workforce in so doing, and the company plans to spread those cuts out over fiveyears. The expectation is that making the cuts will generate annual savings ofmore than $200 million. As part of this effort, Novartis will close down somesites in Switzerland and Italy and either move their work to other Novartis locationsor outsource them to third parties.
The major reason cited was the fact that drug prices haddropped by about 5 percent already this year in Europe, with "no end in sight,"according to Novartis CEO Joseph Jimenez, who adds, "We can't absorb theseprice cuts without taking action."
While Jimenez says Novartis is in a better position thanmany of its rivals to deal with cuts in reimbursement from government entities—sincethat business only account for 55 percent of its sales, compared with anaverage of 80 to 90 percent among peers—he notes, "The health care industryis facing a difficult external environment. The financial crisis has become adebt crisis and you've got governments around the world that are pushing downprices of pharmaceuticals and other healthcare products."
"Job cuts are happening in almost all large pharmacompanies," notes Tim Race, an analyst at Deutsche Bank AG in London, whorecommends buying Novartis shares—which, as it happens, fell 2 percent afterthe news, to $57.71, by late morning on the Zurich exchange. "It's aconsequence of squeezing prices, squeezing profitability," Race continued in aBloomberg article. "Pharma companies are reacting to maximize profitability,which is something they should be doing anyway."
Most of the cuts—some 1,100 jobs—willbe made in Switzerland. Some of the company's research efforts will be shifted fromSwitzerland to the United States, and cuts will be instituted in the areas of technicalresearch and development, data management, clinical trial monitoring, drugsafety and regulatory affairs. Some research and development jobs will likelybe outsourced.
While the cuts may indeed benecessary, it will probably be of no comfort to employees to hear of job cutson the same day that Novartis posted news of a strong third quarter. In thatfinancial update, the company noted that net sales increased 18 percent to $14.8 billion,core operating income grew 11 percent to $4.1 billion, core earnings per sharerose 7 percent to $1.45 per share and free cash flow grew 27 percent to $3.7 billion.
Novartis also highlighted somestrong pipeline performance in the third quarter, including the approval of Afinitor/Votubiain the European Union for two additional indications, a positive opinion grantedfor Rasitrio for high blood pressure, approval in Japan for multiple sclerosistreatment Gilenya, and phase III study results demonstrating that Afinitor plusexemestane significantly lengthens the amount of time women with advancedbreast cancer live without the disease progressing.