Novartis AG, the Swiss maker of the Diovan hypertension drug, changed the management of three of four business units, the second shake-up in a year as the company prepares for loss of patent protection on its best-seller.
Chief Executive Officer Daniel Vasella created the post of chief operating officer for Joerg Reinhardt, a Novartis veteran who is now head of the vaccines unit. Vasella said he will share some of the workload with Reinhardt. Thomas Ebeling, chief of the consumer health unit, is leaving the company, Basel-based Novartis said today.
The shuffle follows Vasella’s decision to eliminate jobs, replace division heads and buy a stake in eye-care company Alcon Inc. because of the threat of generic copies to Diovan, the company’s best-seller. Shareholders have repeatedly pressured Vasella to give up one of his roles as CEO and chairman. Vasella reached an agreement with the board to extend his contract until 2010, keeping his current pay, Novartis said today.
“Reinhardt is well regarded inside and outside the company and has led a number of significant successes for the company,” said Karl Heinz Koch, an analyst at Helvea in Geneva. “As such he would be a great choice” to succeed Vasella.
Novartis also will cut 550 marketing jobs in the U.S., and will shift its strategy to concentrate on selling drugs to managed care organizations, rather than to doctors.
Cost Savings
Vasella’s cost-cutting efforts in the last year have already generated about $714 million in savings this year, more than the $670 million target. The latest shake-up will save $80 million annually starting in 2010, Novartis said, adding that more will be needed.
Novartis said third-quarter net income fell to $2.09 billion after last year’s earnings were boosted by $5.2 billion generated by the sale of two units to Nestle SA. Analysts surveyed by Bloomberg estimated profit of $2.13 billion. Profit from continuing operations rose 32 percent on sales of the Gleevec cancer pill and Diovan.
“The real story is in the changes to management,” said Romain Pasche, who manages about $1 billion, including Novartis shares, at Vontobel Asset Management in Zurich. “I like the fact that things are moving but, having said that, it’s very difficult to judge the performance of each individual so far, so the impact remains uncertain.”
Novartis fell 1.95 Swiss francs, or 3.3 percent to 57.55 francs at 3:04 p.m. in Zurich trading. That gives the company a market value of 152 billion Swiss francs ($133 billion).
Reinhardt’s Replacement
Ebeling will be replaced by George Gunn, currently head of the animal health division. Reinhardt’s post will be filled by Andrin Oswald, chief executive of Speedel AG, which was bought by Novartis earlier this year.
Andreas Rummelt, head of the Sandoz generic drugs division, will be replaced by Jeff George, who leads emerging markets. Rummelt will head quality assurance. David Epstein, who heads the oncology division, will also oversee a new unit focusing on molecular diagnostics.
The shuffle follows job reductions at rivals GlaxoSmithKline Plc and Sanofi-Aventis SA. London-based Glaxo said it may cut as many as 850 research and development jobs in the U.S. and the U.K. French rival Sanofi said earlier this month it will cut 927 positions, mostly sales, in France.
In total, drug companies have reduced costs by cutting more than 100,000 jobs since 2002, including 14,000 at New York-based Pfizer, the world’s biggest drugmaker.
Diovan Sales
Novartis expects to grow faster than competitors in the second half after recovering from delays to the diabetes medicine Galvus, the withdrawal of its irritable bowel treatment Zelnorm and the failure to win approval for the Prexige painkiller. Third-quarter growth was driven by revenue from Diovan, which increased 14 percent, and by Gleevec, which advanced 21 percent. The company expects to have record revenue and earnings this year.
Novartis lowered its forecast for sales at its generics division, saying it expects revenue to rise at a “low-single- digit” rate. The company now expects sales in its pharmaceuticals division to grow at a “mid-single-digit” rate, compared with an earlier estimate of an increase in the low single-digits.
“The results are good, but the content is mixed,” Helvea’s Koch said. “Novartis has to see that it gets Sandoz back on track.”
Diovan sales rose to $1.44 billion, while Gleevec generated $950 million. Tekturna, a new heart drug slated to replace Diovan, had sales of $40 million in the quarter.
The financial crisis has had a “minimal impact” on the company, Novartis said, adding that it has a “sound” ability to issue U.S. commercial paper.
Source: Bloomberg
Popularity: 54% [?]
