Dec. 13 (Bloomberg) -- Novartis AG, Switzerland's largest drugmaker, will eliminate 2,500 jobs during the next two years as product delays and increased competition from generic medicines slow sales growth.

The cuts, equal to 2.5 percent of its workforce, will bring annual savings of $1.6 billion by 2010, the Basel, Switzerland-based company said today. Novartis will take a restructuring charge of $450 million in the current quarter.

Novartis's sales rose 9 percent in the third quarter, a percentage point lower than the previous quarter and less than half the rate at the start of the year. The company first announced job cuts in October after the diabetes medicine Galvus was delayed, the irritable bowel treatment Zelnorm was withdrawn, and the Prexige painkiller failed to win approval. Generic drugs are taking sales from the heart treatment Lotrel and anti-fungal Lamisil.

``In general, now is not a good time in big pharma,'' Denise Anderson, an analyst at Landsbanki Kepler, said in an interview. ``Sales and profitability are slowing, and the company doesn't see it as a short-term thing.''

Novartis fell 25 centimes, or 0.4 percent, to 63.8 Swiss francs at the close of trading in Zurich. The stock has declined 9.2 percent this year, making them the third-worst performer on the Bloomberg Europe Pharmaceutical Index, which has fallen 9.8 percent.

Rivals' Cuts

The Swiss company isn't the only drugmaker to cut staff after delays to new products. In July, London-based AstraZeneca Plc announced plans to reduce its workforce by about 11 percent. Pfizer Inc., the world's biggest drugmaker, is cutting 10,000 positions. GlaxoSmithKline Plc, also based in London, is eliminating jobs in sales, manufacturing and research to save 700 million pounds ($1.43 billion).

Group sales should rise by a mid-single digit percentage, or less than 10 percent, in local currencies, Novartis said in slides on its Web site. The company didn't give the time period for the forecast. That keeps a sales forecast given in October.

The fourth quarter and the first half of 2008 will be affected by ``strong negative impact'' from the U.S. drug unit, the company said. Vaccine sales in the last quarter of 2007 will also be weaker than in the same period in 2006, the company said.

Novartis plans to cut the number of management levels, pare research and reduce sales positions in an effort to accelerate growth in the second half of next year.

`Short-Term Down Cycle'

``We have taken the opportunity given the short-term down- cycle in our pharmaceuticals business to initiate this project,'' Chief Executive Officer Daniel Vasella said in the statement. ``This will simplify our organization and redesign the way we operate.''

The changes announced today will bring $670 million in cost savings next year and $1.3 billion in 2009. The 2010 reductions include $140 million from corporate costs and $717 million in procurement, Novartis said.

In October, Novartis announced plans to cut more than 1,200 marketing and sales posts in the U.S. The move is expected to save $230 million, the company said at the time.

``This makes me feel cautiously optimistic,'' said Beatrice Kunz, a portfolio manager at Clariden Leu in Zurich, where she helps oversee $147 billion, including Novartis shares. ``Investors have been focusing on the negative news too much. I believe things will get better in the second half of 2008.''

(A conference call held at 2:30 p.m. Zurich time today is available on its Web site at http://www.novartis.com/investors/financial-publications- events/index.shtml)

To contact the reporter on this story: Eva von Schaper in Munich at evonschaper@bloomberg.net.

Last Updated: December 13, 2007 11:57 EST