Novartis AG (NOVN) will cut 1,960 jobs in the U.S. and take $1.22 billion of charges to prepare for lower sales of two blood-pressure drugs.
Novartis will take a $900 million charge against fourth- quarter results after lowering expectations for revenue from the hypertension pill Tekturna, and an expense of $160 million to end research on two experimental medicines, the Basel, Switzerland-based company said in a statement today. The job cuts, in anticipation of generic competition for the Diovan treatment, will lead to a $160 million first-quarter charge.
Chief Executive Officer Joe Jimenez has been cutting expenses since he took the job in February 2010. He has also been trying to boost sales from specialist-prescribed drugs, such as the multiple sclerosis pill Gilenya and Afinitor for cancer, to replace revenue from Diovan, the top-selling drug that lost patent protection in Europe last year and will do so in the U.S. in September.
The provision for Tekturna “suggests that its future is bleak,” Mark Purcell, an analyst at Barclays Capital in London, wrote in a note today. “Novartis will struggle to deliver growth anywhere near consensus estimates,” Purcell wrote. He rates the stock “underweight.”
Novartis fell 0.7 percent to 53 Swiss francs in Zurich trading, compared with a 0.4 percent decline in the Bloomberg Europe Pharmaceutical Index. The company’s stock has returned 0.4 percent in the past year, including reinvested dividends, compared with a 16 percent return for the index.
Novartis last month halted a trial of Tekturna, sold as Rasilez outside the U.S., in patients with diabetes because some experienced more non-fatal strokes and kidney complications. The drug, first approved in 2007 for lowering blood pressure, is now being reviewed by the European Medicines Agency. Tekturna had sales of $449 million in the first nine months of the year.
Analysts had predicted Tekturna sales of $1.4 billion by 2016 and “you can easily take $1 billion” off that figure, said Martin Voegtli, an analyst at Kepler Capital Markets in Zurich, in a telephone interview.
“Earnings will come down,” Voegtli said. “The new products that are growing have a much lower margin than Diovan.” He has a “hold” rating on Novartis. Diovan had sales of $4.3 billion in the first nine months of 2011.
The job reductions equal about 1.6 percent of Novartis’s workforce of about 119,400 people, according to data compiled by Bloomberg. About 1,630 of those cut will be salespeople, with the rest coming from U.S. headquarters, the company said. The jobs will be eliminated in the second quarter. The cuts will result in annual savings of $450 million by 2013.
It’s the third round of job cuts announced in the past 14 months. In October the company said it would eliminate 2,000 jobs in Switzerland and the U.S., after saying in November 2010 it would cut 1,400 jobs in the U.S.
The restructuring of Novartis’s U.S. pharmaceuticals business “was widely expected” in light of the Diovan patent expiration and the disappointing results in the Tekturna trial, Karl Heinz Koch, an analyst at Helvea SA in Zurich, wrote in a note today.
The combination of the job cuts and strategic shift “should increase confidence that margins in pharmaceuticals are sustainable even as Novartis goes through the Diovan patent expiry,” Koch wrote. He recommends buying the shares.
Novartis also said today it was terminating development of PRT128, also known as elinogrel, for heart disease and SMC021, known as oral calcitonin, for bone ailments.
“We recognize that the next two years will be challenging in the pharmaceuticals division and we are proactively making these changes to further focus our pipeline on the best opportunities and align our market position on our growth brands,” David Epstein, head of the unit, said in the statement.
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