Novartis Plans 2000 Job Cuts, Closure Of Swiss, Italian Sites - Update

Novartis 10252011 1

Novartis AG (NVS) announced Tuesday additional cost reduction plans after reporting a 7 percent rise in third-quarter profit, benefiting from recently launched products and a weakening U.S. dollar. The Swiss drug maker plans to eliminate 2,000 positions mostly in Switzerland and the U.S., and close two sites in Switzerland and one in Italy.

Novartis' cost reduction activity will be executed over three to five years. The company said the job reductions will be offset by 700 new positions in low cost and other countries.

Novartis' cost reduction activity includes reallocation of production within the Novartis network resulting in closure of two sites in Switzerland and one in Italy; restructuring the development organization largely in Switzerland and the US and relocating some research activities from Switzerland to the US.

Joseph Jimenez, CEO of the company said, "To strengthen our future, we have accelerated actions to reduce our cost base over the next few years. These actions are necessary to ensure that we adapt our organization to continue delivering on our mission of bringing innovative new drugs to patients."

In the third quarter, the company's net income increased 7 percent to $2.49 billion from $2.32 billion in the previous year. On a per-share basis, earnings improved to $1.02 from $0.99 per share reported in the prior year.

Core net income for the quarter, which excluded certain one-time items, was $3.54 billion or $1.45 per share, up from $3.15 billion or $1.36 per share a year ago.

On average, three analysts polled by Thomson Reuters expected the company to earn $1.51 per share in the quarter. Such estimates typically exclude special items.

Core operating income margin in constant currency increased by 0.6 percentage points, offset by currency impact of 2.3 percentage points, resulting in a net decrease of 1.7 percentage points to 27.7 percent.

Net sales for the quarter climbed 18 percent to $14.84 billion from $12.58 billion in the same period last year. The growth was 12 percent at constant currency. The increase in sales was mainly due to a strong performance from recently launched products, which contributed $3.6 billion or 25 percent to total net sales, the company said. Analysts estimated revenues of $15.09 billion for the quarter.

Weakness of the US dollar against most major currencies benefited sales by 6 percent.

Pharmaceuticals net sales grew 9 percent to $8.2 billion. Recently launched products contributed $2.4 billion or 29 percent of Pharmaceuticals sales, up 36 percent at constant currencies.

In newly-acquired eye care company Alcon, pro forma net sales rose 12 percent from the preceding year to $2.5 billion. Sandoz net sales grew 6 percent to $2.3 billion, mainly driven by sales of recently launched products.

"Once again, the breadth of our business and product portfolio allowed us to deliver strong financial results and operating leverage, as well as significantly advancing the pipeline in the quarter," Jimenez stated.

Looking ahead to the full year, the Group expects constant currency sales growth to be in the low double-digits, based on the consolidation of Alcon for four months in 2010.

NVS closed Monday's regular trading at $58.86 on the NYSE.

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