Novartis to restructure U.S. business and cut more than 1,900 jobs

Move is intended to strengthen competitive position in light of loss of Diovan patent and announced charge for Rasilez/Tekturna

Jeffrey Bouley
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BASEL, Switzerland—Novartis has announced that it will restructure its U.S. General Medicines business, resulting in the elimination of 1,960 positions, in an effort to strengthenits competitive position after the expiration of the Diovan (valsartan) patent and anexpected reduction in demand for Rasilez/Tekturna (aliskiren) followingtermination of the ALTITUDE clinical study. This is expected to result in annual savings of some $450 million by 2013, about half of which isexpected to be realized in 2012 due to reorganization timelines.
In addition, because of this and as part of "ongoing portfolio review," according to Novartis, the company will take an exceptionalcharge of approximately $160 million, in large part related to termination of the PRT128(elinogrel) and SMC021(oral calcitonin) programs.
"We recognize that the next two years will bechallenging in the Pharmaceuticals Division and we are proactively making thesechanges to further focus our pipeline on the best opportunities and align ourmarket position on our growth brands," said David Epstein, Division Headof Novartis Pharmaceuticals, in an official statement. "These are difficult but necessary decisionsthat will free up resources to invest in the future of our business which we viewas well suited to bring new valuable therapies to patients and payors."
A central element of the plan, Novartis says, is a restructuringof the General Medicines business in the important U.S. market, "where NovartisPharmaceuticals will continue to focus on expanding its presence in specialtybusinesses aligned with the product portfolio and pipeline."
The end result is that thefield force will be cut by approximately 1,630 positions andheadquarters functions will be realigned to support the new organization, leading to a loss of approximately 330 other positions. The changes areplanned to take effect in the second quarter of 2012, and associates will benotified in early April.
Outplacement and other support services will be available toimpacted associates as well as redeployment opportunities, where they exist,within the Novartis group of companies.
Patent expiry of Diovan, a market-leading hypertensionmedication, is expected in the United States in September 2012, but plans to restructure were acceleratedafter the ALTITUDE study was halted following the recommendation from the DataMonitoring Committee overseeing that trial, which was investigatingRasilez/Tekturna in a high-risk population of patients with type 2 diabetes andrenal impairment. As a precautionary measure, Novartis ceasedall promotion of Rasilez/Tekturna-based products for use in combination with anangiotensin converting enzyme (ACE) inhibitor or angiotensin receptor blocker(ARB). Novartis, in consultation with health authorities, isnow recommending that hypertensive patients with diabetes should not be treatedwith Rasilez/Tekturna in combination with an ACE-inhibitor or ARB.
"Patientsafety is the highest priority for Novartis and we are in continuing dialoguewith health authorities worldwide to establish the most appropriate next steps," the company noted in its announcement of the restructuring.
A reassessment of the future sales potential ofRasilez/Tekturna in light of the ALTITUDE results has led to an exceptionalcharge of approximately $900 million (of which approximately $800 million is non-cash) to be recognized in the fourth quarter of 2011. The chargecomprises impairments to intangible and manufacturing assets and excessinventory together with trial wind-down and other exit costs. The accountingcharge is triggered by lower sales expectations and does not seek to anticipatethe results of our ongoing discussions with health authorities concerningRasilez/Tekturna.

Jeffrey Bouley

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