(Photo: imago images/IP3press)
Zurich The Swiss pharmaceutical company Novartis is realigning its core business. In the business with patent-protected drugs – called Innovative Medicines – the previously separately managed Pharmaceuticals and Oncology areas will be merged, as the drug manufacturer from Basel announced on Monday.
Pharmaceuticals boss Marie-France Tschudin takes over management of the division. The manager will also become Chief Commercial Officer. These and other changes are expected to reduce selling and general expenses by at least $1 billion by 2024.
“The simplified organizational model (…) is a central component of our growth strategy,” explained CEO Vasant Narasimhan. “It makes us more agile and competitive.” He sees Novartis well positioned with the current drug portfolio and potentially up to 20 new drugs by 2026.
The manager confirmed the forecast of at least four percent average sales growth at Innovative Medicines in the period 2020 to 2026. Narasimhan was a little more optimistic about profitability than last time: The adjusted operating profit margin should be at the upper end of the high 30 percent range that has been promised in the medium term and rise to over 40 percent in the longer term. Last year it was 36.2 percent.
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The previous head of the oncology division, Susanne Schaffert, will leave Novartis. John Tsai, head of drug development, and head of Customer & Technology Solutions, Robert Weltevreden, will also leave the company. Shreeram Aradhye will be responsible for drug development from mid-May.
With the conversion, Novartis boss Narasimhan is reacting to the growing distance to local rival Roche. Since taking office in 2018, Novartis shares have lagged significantly behind Roche shares. In the corona pandemic, Novartis is still waiting for the emergency approval of its drug Ensovibep, which it developed with Molecular Partners, while Roche’s corona testing business more than offset sales losses in the pharmaceuticals business.
New board position for strategy development
Like all big pharmaceutical companies, Novartis has to replace the loss of patent protection for important blockbuster drugs with new therapies. Five out of six newly developed drugs, which Novartis expects to generate multi-billion sales according to an investor presentation, come from the pharmaceutical division for which Tschudin is responsible. The manager is the big winner of the restructuring.
The group is also creating a new unit called Strategy & Growth, which will take care of the company’s strategy and the direction of research and development. A boss for this area is still being sought. Finally, Novartis is reorganizing the sale of the patented drugs geographically: in future there will be one sales organization for the world’s largest healthcare market, the USA, and one for the rest of the world.
Novartis generates more than 80 percent of its sales and more than 90 percent of its operating profit in the patent-protected drug business. The second division, Sandoz, which manufactures and sells generic drugs, has put Narasimhan up for sale. This could flush a two-digit billion amount into the coffers. In addition, Novartis sold its Roche shares, taking 19 billion francs (around 18.6 billion euros). It is still unclear to what extent Narasimhan wants to spend the money on acquisitions.
The restructuring of the group made no big waves on the stock exchange. With a price increase of 1.5 percent, Novartis was in the top third of European health stocks. “Today’s news confirms our view that four percent growth is not a matter of course,” explained Vontobel analyst Stefan Schneider. “It remains to be seen whether the changes will be sufficient to achieve the goals.”
More: Nestlé, Roche, Novartis and Givaudan – Swiss equities as a safe haven in times of crisis.