May 23, 2016 / 7:00 PM / in 3 years

UPDATE 1-Novartis executive exodus complicates drugmaker's rebuilding job

* Seven top execs leave inside five months, including drugs chief

* Challenges mount up, from patent expiries to Entresto and Alcon

* CEO Jimenez under pressure to reverse share price fall

* Company says changes unconnected, replacements top quality (Adds Novartis response)

By John Miller

ZURICH, May 23 (Reuters) - With seven departures in the space of five months, Novartis’s top management is in upheaval just as CEO Joe Jimenez tries to tackle a list of challenges that have seen the drug firm’s share price fall 25 percent since July.

The most dramatic exit came last week, when head of pharmaceuticals David Epstein quit as his division was broken in two.

By splitting oncology into a department of its own, Novartis aims to make the most of a high-margin business that it bought from GlaxoSmithKline for $16 billion last year, a reorganisation that has business logic for analysts.

“After years of empire building ... that’s what investors want”, said Cedric de Fonclare, a fund manager at London-based Jupiter Asset Management and a Novartis investor. “Clearly, the future of that company will be about specialised drugs, high-value drugs, so they can face up to what is the challenge in this industry: price deflation and price pressure.”

But the departures also reflect ongoing problems, as well as longer-term management instability.

U.S. country head Christi Shaw left this month after overseeing, with Epstein, the lacklustre launch of Entresto, Novartis’s seemingly promising heart-failure medication, now expected to garner less than half the sales in 2016 than analysts had been forecasting.

Novartis did get a break last week, when global guidelines on the treatment of heart failure strongly endorsed the drug.

But the product pipeline is a pressing issue for the firm after the expiry of the U.S. patent for Gleevec, its best-selling blood cancer drug, which has put $2.5 billion of revenue at risk.


Alcon head Jeff George departed in January after yet another quarter of falling sales in the division’s core ophthalmic surgery equipment amid a lack of innovative products and customer disappointment with cutbacks in training for surgeons.

“Over the years, the company has been like a revolving door when it comes to senior managers departing — below the CEO level, that is,” wrote Tim Anderson, a Bernstein analyst. “We have wondered if this has contributed to periodic shortfalls at the company, because of a lack of continuity.”

Chief Ethics Officer Eric Cornut is leaving Novartis after 27 years, at a time when it is fighting U.S. allegations that its sales force bribed doctors to prescribe its medicines.

Meanwhile Ameet Nathwani, global head of medical affairs, jumped ship to Novartis’s rival Sanofi two months ago.

Mark Fishman, director of the Novartis Institute for Biomedical Research, in Boston, is retiring, as is William Sellars, the head of oncology research.

“Key positions are changing rapidly right now, in a situation where you probably prefer to have more stability,” said Vontobel analyst Stefan Schneider.

Novartis said the changes in leadership were unconnected and that the replacements it has poached, in some cases from rivals, in others Harvard University, reflect “the brightest talents”. For instance, Fishman is being replaced by Jay Bradner, a scientist from Harvard’s Dana-Farber Cancer Institute, while AstraZeneca’s departing U.S. chief Paul Hudson will lead Novartis’ new pharmaceuticals unit.

“Our focus is on having the structures, processes and people in place to ensure Novartis’ long-term business success,” the company said in a statement.

Still, with its shares down so sharply since July’s peak, while the broader European pharmaceuticals sector is down only 17 percent and cross-town rival Roche down 10 percent, it all adds up to a challenge for Jimenez as he prepares to explain to investors in Basel on Wednesday how he will revive Novartis’s fortunes. (Reporting by John Miller; Editing by Kevin Liffey and David Evans)

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