Novartis, axing 19% of its workforce, faces big challenges with thinned ranks

When Novartis created its business services unit in 2014—streamlining its management structure into five global operations—then-CEO Joe Jimenez hailed the reorganization as an ideal strategy for cutting costs. And it worked, creating $3 billion in what the company called "productivity gains" as it reduced the costs associated with its back-office operations.

But apparently that wasn’t enough. Now that same business services organization is being targeted as part of Novartis’ massive restructuring announced today. It’s all part of current CEO Vas Narasimhan’s plan to reduce Novartis’ overall workforce by at least 19%, from 124,000 today to under 100,000 by 2022, he told reporters during a press call in Switzerland.

Most of those cuts will come from manufacturing and the company’s 2019 spinoff of its Alcon eye unit. But a restructuring of business services will result in an additional 700 jobs lost, the company said in an emailed statement. Novartis plans to move some management operations from its Basel headquarters to the five service centers in India, Malaysia, Mexico, the Czech Republic and Ireland.

"The primary drivers for this intention are the benefits that standardization, simplification and a sound global services location strategy bring over time," the statement said.

When Narasimhan stepped into the CEO job in February, he inherited several challenges, not the least of which was Alcon, a chronically underperforming business that Novartis was under tremendous pressure to address. The spinoff will help improve margins, but more needs to be done, which is why Narasimhan took the baton on a plan established in 2016 to cut $1 billion in costs per year by improving the company’s manufacturing efficiency. It had already announced castoffs of plants in Colorado, North Carolina and New York, and the most recent round of job cuts amounts to 1,450 employees in four manufacturing facilities.

Narasimhan is embarking on this efficiency push while balancing the need to grow Novartis’ presence in biotech, where manufacturing is a complex and expensive enterprise. That’s why it’s adding jobs at the New Jersey plant that’s manufacturing Kymriah, its personalized cell-based treatment for some patients with blood cancers, as well as at Swiss sites that are focused on biologics. And in April, the company paid $8.7 billion for AveXis and its phase 3 gene therapy treatment for spinal muscular atrophy.

Novartis’ strategy is certainly ambitious, even in the context of an overall push for efficiency in Big Pharma. In June, reports emerged that Novo Nordisk was plotting as many as 3,000 layoffs. The company hasn’t announced specifics of the plan, but it would be coming close on the heels of a 2016 round of layoffs, which affected 1,000 employees. The diabetes-focused company is facing pricing pressure in the U.S. that has cast doubts on its ability to meet sales and profit targets for next year.

Eli Lilly and GlaxoSmithKline have also undergone restructuring efforts as they try to transition into high-margin opportunities. Lilly announced 3,500 layoffs last year, as it reached for $500 million in annual savings, while at the same time making a push into oncology. In July of this year, GSK closed its Bangladesh manufacturing plant and laid off 1,000 people as it sought to streamline operations in emerging markets.

Still, Novartis stands out for the sheer size and scope of its downsizing plan—and for the challenges the company will still have to address with a rapidly shrinking workforce. Novartis is grappling with marketing and manufacturing issues surrounding Kymriah, for example, and it called off planned price hikes in the face of increasing scorn from Washington on Big Pharma pricing practices. Novartis is also facing pricing pressure on key products, including psoriasis drug Cosentyx and its stable of generic drugs produced by its Sandoz division, which is facing a sales decline in the U.S. even as its volume continues to grow.

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