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Novartis to lay off another 2,000 people
BASEL, Switzerland—It was just a month ago, almost to the day, that we shared with you reports by Swiss daily Tages Anzeiger that Novartis had eliminated some 2,500 jobs at sites across the world over the previous year to rein in costs. Now comes word that another 2,000 jobs are on the chopping block.
Telling the media it is trying to offset the effect of drug-price reductions, officials at Europe's second-largest pharmaceutical company say the 2,000 cuts will be in Switzerland and the United States, with the addition of some 700 employees in China and India—for a net loss of 1,300 jobs.
Novartis will be giving walking papers to about 1 percent of its workforce in so doing, and the company plans to spread those cuts out over five years. The expectation is that making the cuts will generate annual savings of more than $200 million. As part of this effort, Novartis will close down some sites in Switzerland and Italy and either move their work to other Novartis locations or outsource them to third parties.
The major reason cited was the fact that drug prices had dropped 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 these price cuts without taking action."
While Jimenez says Novartis is in a better position than many of its rivals to deal with cuts in reimbursement from government entities—since that business only account for 55 percent of its sales, compared with an average of 80 to 90 percent among peers—he notes, "The health care industry is facing a difficult external environment. The financial crisis has become a debt crisis and you've got governments around the world that are pushing down prices of pharmaceuticals and other healthcare products."
"Job cuts are happening in almost all large pharma companies," notes Tim Race, an analyst at Deutsche Bank AG in London, who recommends buying Novartis shares—which, as it happens, fell 2 percent after the news, to $57.71, by late morning on the Zurich exchange. "It's a consequence of squeezing prices, squeezing profitability," Race continued in a Bloomberg article. "Pharma companies are reacting to maximize profitability, which is something they should be doing anyway."
Most of the cuts—some 1,100 jobs—will be made in Switzerland. Some of the company's research efforts will be shifted from Switzerland to the United States, and cuts will be instituted in the areas of technical research and development, data management, clinical trial monitoring, drug safety and regulatory affairs. Some research and development jobs will likely be outsourced.
While the cuts may indeed be necessary, it will probably be of no comfort to employees to hear of job cuts on the same day that Novartis posted news of a strong third quarter. In that financial 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 share rose 7 percent to $1.45 per share and free cash flow grew 27 percent to $3.7 billion.
Novartis also highlighted some strong pipeline performance in the third quarter, including the approval of Afinitor/Votubia in the European Union for two additional indications, a positive opinion granted for Rasitrio for high blood pressure, approval in Japan for multiple sclerosis treatment Gilenya, and phase III study results demonstrating that Afinitor plus exemestane significantly lengthens the amount of time women with advanced breast cancer live without the disease progressing.