Novartis Restructures, To Fire 2,500

Novartis has announced a restructuring plan called, “Forward,” to reduce costs and improve efficiencies. According to a company statement, the plan “is expected to simplify working processes and decision making by eliminating layers, concentrating on core activities and systematically capturing growth opportunities, particularly in emerging markets.” This will include firing 2,500 staffers — out of a total of 100,000 — as part of its strategy to generate $1.6 billion in annual savings. Novartis will take a $450 million charge in 4Q07 to pay for the restructuring.

The company cited the standard set of “industry challenges” to explain the need for a restructuring: price pressures on drugs, growing R&D costs, a risk-averse regulatory environment and more aggressive generic competitors, the latter of which Novartis benefits from, thanks to its generics division, Sandoz.

“Forward” will include the following initiatives, as quoted from Novartis’ press statement:

• Organizational structures will be streamlined in corporate functions as well as in the Pharmaceuticals and Consumer Health Divisions, particularly involving general management and administrative areas.
• In the Pharmaceuticals Division, the effectiveness of the worldwide sales forces will be improved with a more geographic-tailored marketing approach. Duplication between global, regional and local activities will be eliminated, while certain non-core support activities will be outsourced.
• The Consumer Health Division will remove organizational layers to streamline processes and eliminate duplications, while some product supply chains will be restructured to optimize capacity utilization. In certain business units, regional management structures will be modified in order to better focus resources on global or local activities.
• The Novartis Institutes for BioMedical Research will focus on disease areas with significant new opportunities and review its research activities globally to take advantage of synergies among disease areas and locations to increase efficiency.
• Initiatives are underway to capture savings from the creation of Group-wide shared functions, including procurement and information technology, that will provide greater economies of scale and leverage opportunities in low-cost countries.
• Novartis will form a new cross-divisional operation to accelerate growth in small emerging markets, expanding the presence of all Novartis products in regions that include Northern and Sub-Saharan Africa, Central Asia and parts of Southeast Asia.