Novartis Initiates Revamp of Research Units, Slashes Jobs

Closes down its research units in Switzerland and China as well as slashes 175 jobs globally

n1Swiss pharma giant Novartis AG (NYSE: NVS) is undertaking a massive restructuring of its global operations, which includes closing down its research units in Switzerland and China, as well as slashing 175 jobs, in an effort to centralize control over its drug discovery programs and contain costs, as reported by Reuters on October 5th, 2016. This is in addition to the implementation of cost-cutting measures in May 2016 and a revamp of its pharmaceuticals division.

As a first step, Novartis, which employs 120,000 people globally, will close down its biologics group in Shanghai, axing 18 positions, with plans to maintain much of these operations at its newly opened $1 billion 500-strong R&D facility in the same city. As part of its new research strategy, Novartis said it is creating 20 to 25 new positions at its Basel headquarters.

n2James Bradner, President of the Novartis Institutes for BioMedical Research, said that the company will move the Novartis Institute for Tropical Diseases (NITD) to California from Singapore in 2017 as part of the Company’s restructuring plans. The relocation of NITD will place it next to Novartis Institute for Biomedical Research (NIBR) facility focusing on infectious diseases. The NITD, which currently has nearly 90 employees, was formed in 2002 by a public-private partnership between Novartis and the Singapore Economic Development Board. The facility is responsible for the discovery of two new malaria treatments that are now under clinical development. By far, Novartis has already invested more than $1.20 billion in Singapore with more than 1,500 employees on its rolls.

Novartis to open two Centers of Excellence

n3Novartis has also announced that it will open two Centers of Excellence for biotherapeutic research in Basel, Switzerland, and Cambridge, Massachusetts, shutting down ESBATech, a biologics unit based in Schlieren, Switzerland, and trimming about 73 jobs. The initiative will lead to the creation of the Chemical Biology and Therapeutics (CBT) team from two of its existing drug discovery teams. Accordingly, the new team will focus on harnessing the power of chemical biology and other cutting edge technologies such as CRISPR, DNA-encoded libraries, and targeted protein degradation to discover new drug targets. CBT will also include teams focused on pathway biology and high throughput screening.

Cell and gene therapies unit to be shut down

On August 31st, 2016, Novartis announced that it would dissolve its standalone specialized cell and gene therapies development unit, and merge it with other parts of the company, leading to about 120 job cuts. However, the change would not affect the Company’s plan to apply for US approval for a type of cell therapy called chimeric antigen replacement therapy or CAR-T, for children with an aggressive form of blood cancer, in early 2017. The therapy, known as CTL019, will be submitted for European approval later in 2017.

Novartis targets breast cancer drug approval

n4In a fresh development, ribociclib, Novartis’s experimental breast cancer drug, in combination with older breast-cancer medicine letrozole, cut the risk of worsening or death by 44% over letrozole alone, in a study of more than 600 people. More than 50% of women taking both medicines saw their tumor size shrink by at least 30%, as reported by Bloomberg on October 8th, 2016. This in turn paves the way for the Company to seek regulatory approval in the US and Europe by the end of 2016, following the US Food and Drug Administration’s decision in August 2016 to designate ribociclib as a breakthrough therapy. Novartis is targeting to win the first approval for ribociclib by the end of June 2017.

The ribociclib study results assumes significance since Novartis is trying to compete with Pfizer Inc. (NYSE: PFE), whose rival medicine Ibrance may generate sales of $2.16 billion in 2016 as per industry experts. Sales of ribociclib, or LEE011, may reach $1 billion by 2020, according to forecasts. Further, Novartis also said that two further trials to evaluate ribociclib in combination with other therapies are fully enrolled.

Novartis has been facing headwinds in the form of patent expiry for its best-selling drugs, Gleevec and Diovan, and slower-than-expected sales of its heart treatment Entresto and Alcon business. To add to its woes, Novartis also faces a potential sales ban in South Korea after several executives were charged with offering illegal rebates. The Company also faces a tougher pricing environment in the US after both US presidential candidates Hillary Clinton and Donald Trump pledged to clamp down on drug price rises.

Pharma majors in cost-cutting mode

Novartis is the latest of the major pharmaceutical companies to announce job cuts. Earlier, Merck & Co. Inc.’s (NYSE: MRK) announced that it shut down a manufacturing plant in Florida, cutting 112 jobs in the process. AstraZeneca PLC (NYSE: AZN) stated in May 2016 that it is on a manufacturing downsizing as part of a $1.5 billion cost-cutting plan, aimed at retrenching as the Company faces generic competition for its blockbuster statin drug Crestor. n5The company said it would cut in some areas and build up in biologics, which require a much more complex production process.

Owing to unanticipated headwinds, Endo International PLC (NASDAQ: ENDP) said in May 2016 that it would slash 740 jobs in North Carolina and Alabama, with one plant closing altogether. Drug giant Pfizer announced that it will begin making 400 layoffs at its manufacturing plant in Rocky Mount, North Carolina, on October 3rd, 2016.

On September 29th, 2016, Danish company Novo Nordisk A/S (NYSE: NVO), the world’s largest insulin producer, announced that it plans to trim about 1,000 jobs or 2% of its workforce, as it tightens its belt in the face of growing competition and resistance to high prices for diabetes drugs in the US Novo, which has a global workforce of 42,300, said about 500 of the lay-offs would be in Denmark. Most cuts will be in R&D units and staff functions at its headquarters in Bagsvaerd as well as in its global commercial organizations. The headcount reduction and associated costs would not change its financial outlook for FY16.

Stock Performance

n6Novartis’s stock stood at $78.29, falling 0.20%, at the close on Friday, October 7th, 2016, having vacillated between an intraday high of $78.62 and a low of $77.76 during the session. The stock’s trading volume was at 1,406,928 for the day. The Company’s market cap was at $207.28 billion as of Friday’s close.

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