Novartis Diovan Drug Patent Loss Prompts Downsizing In US

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The global pharmaceuticals industry is expected to reach a value of over $917 billion in 2015, increasing by around 32% from its 2010 figure. (Image: Stock.xchng)
The global pharmaceuticals industry is expected to reach a value of over $917 billion in 2015, increasing by around 32% from its 2010 figure. (Image: Stock.xchng)

BUSINESS

  • Swiss pharmaceutical company Novartis to cut US workforce by nearly 2000 in 2012
  • Charges from restructuring and discontinuation of unsafe experimental drugs equal around $1.2 billion
  • Novartis should save $450 million/year from layoffs beginning in 2013

Swiss-based pharmaceutical leader Novartis will reduce its US workforce in the second quarter 2012 in response to the expiration of the patent for Diovan, its top-selling hypertension drug, as well as the subpar results of other drugs still in development.

Novartis employs over 120,000 people globally, and according to Bloomberg data cuts will equal over 1.5% of its current workforce. The plan is to eliminate 1,630 sales positions, and another 330 medical sales management positions in the US.

With Diovan’s patent having ended in Europe last year and expiring in September 2012 in the US, Novartis stands to lose $6 billion in annual revenue.

Restructuring charges will add up to $160 million in the first quarter of 2012. At the end of the current year, Novartis will also face a one-off $900 million charge for ending a trial of another hypertension drug, Tekturna, which has been found to cause kidney complications and non-fatal strokes, among other risky side effects.

The company will also lose $160 million for discontinuing two other experimental medications: Oral Calcitonin, used to treat osteoporosis and arthritis, and the anticoagulant Elinogrel.

Total charges will equal around $1.2 billion by the end of the fourth quarter.

Novartis’ latest cuts follow the termination of 2,000 positions in late October 2011, primarily in the US and Switzerland, and 1,400 jobs in the US in 2010. These measures are among the efforts by CEO Joe Jimenez, hired in February 2010, to cut expenses, increase sales and make future investments to replace lost revenue and “boost profitability.”

With layoffs being implemented in the second quarter of this year, Novartis should begin to save $450 million annually by 2013.

Entire Pharmaceutical Industry Taking a Hit

Novartis is not the only pharmaceutical company struggling. A Fitch Ratings agency revealed that 15 major global companies are dealing with “significant challenges” due to the unexpected increase of patent expirations. In upcoming months, the pharmaceutical industry will lose four patents in 10 top-selling drugs, equivalent to $50 billion in sales ($21 billion in sales according to Bloomberg Industries).

Besides Novartis, other affected groups include Eli Lilly, Bristol-Myers Squibb and Pfizer.

Multi-national pharmaceutical companies Astra-Zeneca and Sanofi have also announced major job cuts recently, and are struggling to produce viable replacements for unsuccessful drugs in development. Adding to the challenges faced by the industry, the cost of developing new drugs has risen to just over $1 billion from around $825 million a year ago, according to a Deloitte LLP survey.

To deal with the setbacks from patent expirations, an increasingly attractive and relatively economical option may be to gain new products by acquiring companies. Novartis CEO Jimenez said in a recent statement that his company is open to purchasing $2 billion to $3 billion worth of stock in the areas of veterinary assets, consumer health, diagnostics, generic drugs or biotechnology.

Last January, Novartis announced plans to spend $470 million on Genoptix Inc., a company which “provide[s] personalized and comprehensive laboratory services to community-based hematologists and oncologists”, and in 2010 bought Alcon Inc. for $12.9 billion.

The acquisition trend is only expected to continue as Novartis and other pharmaceutical companies look for ways to reclaim their stake in a struggling industry.

Key Statistics - Global Pharmaceutical Industry (source: Datamonitor)

  • The global pharmaceuticals industry is expected to reach a value of over $917 billion in 2015, increasing by around 32% from its 2010 figure.
  • Making up 32% – the largest portion – of the global pharmaceutical market is other therapeutic purposes.
  • The Americas yield nearly 52% of the pharmaceutical industry’s global value.
  • Procuring a 10% share of the global pharmaceutical market’s value, Pfizer Inc. is a clear leader in the industry.

By Christelle Agboka for
Christelle Agboka is a freelance journalist based in Kingston, Ontario, who covers business and economy news.

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