Oct. 20 (Bloomberg) -- Novartis AG replaced the management of three of four business units and announced more job cuts, the second shake-up in a year as the Swiss drugmaker girds for the patent loss of its best-selling drug Diovan.

The executive shuffle puts a spotlight on Joerg Reinhardt, 52, a Novartis veteran who has been running the vaccines unit. Reinhardt, given a newly created post of chief operating officer, will take some day-to-day duties from Daniel Vasella, the company's 55-year-old chief executive, the Basel-based company said in a release today.

The shake-up's biggest casualty is Thomas Ebeling, 49, chief of the consumer health unit, who is leaving the company, Novartis said. His departure follows his move last year to the smaller consumer-drug unit from the company's biggest division by sales, pharmaceuticals. Under his tenure, Novartis saw the flagship diabetes drug Galvus fail to win approval in the U.S. and the irritable bowel treatment Zelnorm taken off the market. The top management changes are ``substantial,'' Vasella said on a conference call today.

``I wouldn't want to yell fire in a crowded theater just on a management change, but I am willing to say this is an indication of suboptimal performance,'' Les Funtleyder, an analyst at Miller Tabak & Co in New York, said in an interview, referring to Novartis.

Job Cuts

The moves follow Vasella's decisions in the last year to eliminate jobs, replace division heads and buy a stake in eye- care company Alcon Inc. because of the threat of generic copies to the heart medicine Diovan. Novartis also will cut 550 marketing jobs in the U.S., adding to 2,500 job reductions already under way.

Reinhardt ``would be a great choice'' to succeed Vasella, said Karl Heinz Koch, an analyst at Helvea in Geneva. Ethos Foundation, a Swiss activist investor group, has pressured Vasella to give up one of his roles as CEO and chairman. Vasella and the board agreed to extend his contract until 2010, keeping his current pay, Novartis said today.

The company will shift its strategy to concentrate on selling drugs to managed-care organizations, rather than to doctors, as its new products are mainly prescribed by specialists or given in hospitals. A patent loss on its Lotrel treatment for hypertension and the failure to win approval for the pain drug Prexige further cut the need to market to general practitioners.

Novartis also said it will devote more resources to developing and selling cancer medicines. David Epstein, who heads the oncology division, will also oversee a new unit focusing on molecular diagnostics. This decision comes as Pfizer Inc., the world's biggest drugmaker, and Swiss rival Roche Holding AG are strengthening their cancer products.

Cost Savings

Vasella's cost-cutting efforts in the last year have already generated about $714 million in 2008 savings, more than the $670 million target. The latest shake-up will save $80 million annually starting in 2010, Novartis said, adding that more will be needed.

``The real story is in the changes to management,'' said Romain Pasche, who manages about $1 billion, including Novartis shares, at Vontobel Asset Management in Zurich. ``I like the fact that things are moving. But, having said that, it's very difficult to judge the performance of each individual so far, so the impact remains uncertain.''

Sales at the company's Sandoz generics unit, which Vasella said ``disappointed'' him, dropped 15 percent in the U.S., after delays in key product introductions such as a copy of Sanofi- Aventis SA's anti-clotting drug Lovenox. Andreas Rummelt, head of Sandoz, will be replaced by Jeff George, who leads emerging markets. Rummelt will head quality assurance.

Sandoz Forecast

Novartis lowered its forecast for sales at Sandoz, saying it expects revenue to rise at a ``low-single-digit'' rate. The company now expects sales in its pharmaceuticals division to grow at a ``mid-single-digit'' rate, compared with an earlier estimate of an increase in the low single-digits.

Third-quarter net income fell to $2.09 billion after last year's earnings were boosted by $5.2 billion generated by the sale of two units to Nestle SA, Novartis said. Analysts surveyed by Bloomberg had estimated earnings of $2.13 billion. Profit from continuing operations rose 32 percent on sales of the Gleevec cancer pill and Diovan.

Novartis fell 15 centimes, or 0.3 percent, to 59.35 Swiss francs in Zurich trading. That gives the company a market value of 157 billion Swiss francs ($136 billion).

``The results are good, but the content is mixed,'' Helvea's Koch said. ``Novartis has to see that it gets Sandoz back on track.''

Replacements

Ebeling will be replaced by George Gunn, currently head of the animal health division. Reinhardt's post will be filled by Andrin Oswald, chief executive of Speedel AG, which Novartis bought earlier this year.

The shuffle follows job reductions at rivals GlaxoSmithKline Plc and Sanofi-Aventis SA. London-based Glaxo said it may cut as many as 850 research and development jobs in the U.S. and the U.K. French rival Sanofi said earlier this month it will cut 927 positions, mostly sales, in France.

The world's drugmakers have reduced costs by cutting more than 100,000 jobs since 2002, including 14,000 at New York-based Pfizer.

Novartis expects to grow faster than competitors in the second half. Third-quarter growth was driven by revenue from Diovan, which increased 14 percent, and by Gleevec, which advanced 21 percent. The company expects to have record revenue and earnings this year.

Diovan sales rose to $1.44 billion, while Gleevec generated $950 million. Tekturna, a new heart drug slated to replace Diovan, had sales of $40 million in the quarter.

The financial crisis has had ``minimal impact'' on the company, Novartis said, adding that it has a ``sound'' ability to issue U.S. commercial paper.

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

Last Updated: October 20, 2008 14:43 EDT