September 25, 2018 / 5:44 AM / 3 months ago

Novartis to cut 2,550 jobs in Switzerland, UK in profit push

ZURICH (Reuters) - Novartis (NOVN.S) will cut 2,550 jobs in Switzerland and Britain over four years, it said on Tuesday, as the Swiss drugmaker strives to boost profits and focus on new medicines.

FILE PHOTO: Swiss drugmaker Novartis' logo is seen at the company's plant in the northern Swiss town of Stein, Switzerland October 23, 2017. REUTERS/Arnd Wiegmann/File Photo

Switzerland will bear the brunt, with 2,150 cuts planned at four factories and its Swiss-based business services unit. Some 400 jobs will also go in Grimsby, northeast England, where the company will close a plant that makes pills.

Novartis currently employs around 124,000 people worldwide. But following the planned spin-off of eyecare unit Alcon in early 2019, that will fall to fewer than 100,000 people by 2022, Chief Executive Vas Narasimhan said.

Novartis’s network of 66 global factories is operating below capacity after the expiry of patents on high-volume pills such as Diovan for heart disease, he added.

As the company shifts to gene therapies and biologics like arthritis treatment Cosentyx, Narasimhan said the cuts were needed to help him boost the drugs unit’s operating margin to around 35 percent of sales, what he calls the industry standard, from 31.3 percent now.

“Our medicines portfolio is evolving from high-volume products to more specialized and more personalized innovative medicines,” the 42-year-old U.S. doctor told reporters.

“We don’t need the same scale we’ve historically needed. That’s the evolution you’re seeing in our portfolio, and that’s being reflected in our manufacturing footprint.”

Unions blasted the move, saying the Swiss pharmaceuticals industry would be the worse for it.

“There will be massively damaging side effects for Swiss workers, the drug industry and Switzerland’s export economy,” Employees Switzerland wrote in a statement. “We’re not going to let Novartis destroy Basel as a center of industry.”

FILE PHOTO: The logo of Swiss drugmaker Novartis AG is seen at its headquarters in Basel, Switzerland January 25, 2017. REUTERS/Arnd Wiegmann/File Photo

MORE TO COME?

Narasimhan, whose company’s net income rose 15 percent last year to $7.7 billion, is seeking to transform Novartis from a traditional pills maker to a maker of cutting-edge therapies like its $475,000-per-patient Kymriah cancer treatment.

He announced the sale of a U.S. generics drugs business last month to India’s Aurobindo (ARBN.NS) and a consumer healthcare joint venture to GlaxoSmithKline (GSK.L) earlier this year.

Meanwhile, he spent $8.7 billion to take over U.S.-based Avexis to get its experimental gene therapy against potentially deadly spinal muscular atrophy that is nearing a filing for U.S. approval.

The cuts join those at other drugmakers: 1,000 Takeda (4502.T) workers will be affected as it moves a U.S. headquarters, while GlaxoSmithKline is axing 650 U.S. jobs.

Severin Schwan, CEO of Novartis’s crosstown rival Roche (ROG.S), said this month he also had his eyes on costs as his top-selling medicines face incursions from cheaper copies.

Novartis’s restructuring comes as part of a program announced in 2016 to save about $1 billion annually, Narasimhan said. Previous moves have included closing a U.S. pill factory in Colorado that resulted in 450 job losses, as well as redundancies in Japan.

The company did not announce the cost of the latest cuts, but said it would take charges over the four-year period.

The net effect of the restructuring is about 2,100 jobs lost, Novartis said, taking into account new positions it is creating at soon-to-be-built Swiss facilities to make Kymriah.

Novartis shares were up about 0.8 percent at 0900 GMT.

Analysts said the measures were in line with expectations - this month, Novartis Chairman Joerg Reinhardt hinted they were coming.

“The company’s ambition to deliver a mid-30s EBIT (earnings before interest and taxes) margin in Innovative Medicines requires productivity programs,” UBS analyst Michael Leuchten said.

“We expect the above will not be the last program to be announced.”

Reporting by John Miller; Editing by Michael Shields and Mark Potter

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