Novartis CEO continues reshuffle, says it will save more than $1 billion a year
CEO Vas Narasimhan continues his reshuffle of the Swiss pharmaceutical giant, announcing on Monday a corporate restructuring that the company says will simplify its organizational chart and bring more than $1 billion in annual savings.
The reorganization is the latest move by Narasimhan, which took over Novartis (ticker: NVS) in 2018. Since then, the company has spun off its eye care unit, sold a $20.7 billion stake in
(RHHBY), has spent nearly $10 billion on a clinical-stage single-drug biotech and announced a strategic review it says could end with the spin-off of its generic drugs division.
Narasimhan is following a path set by pharmaceutical peers such as
(GSK), abandoning business units to focus on the development of new pharmaceutical products.
Investors have yet to show interest in the revamped Novartis. The company’s US certificate of deposit has risen 5.6% since Narasimhan took over and returned 19.8%. Over the same period, the
is up 58.2% and returned 70.5%, while the
S&P 500 Pharmaceuticals
the index is up 44.9% and returned 59.1%.
Novartis shares were down 0.4% on Monday.
In an interview with Barrons in December, Narasimhan touted Novartis as a stable investment for uncertain times. “Novartis is designed to be a story of constant growth,” he said. “We’re not one of those stories where it’s a binary bet on Alzheimer’s disease, or a binary bet on an obesity drug, or a binary bet on a vaccine to mRNA. What we are is a company that can steadily grow in sales and profit over time, consistently. And I think long-term investors appreciate that.
ADR is trading at 13.6 times expected earnings over the next 12 months, much cheaper than
(LLY) 32.6 times earnings, but on par with Pfizer’s 13.1 times earnings, according to FactSet.
The restructuring announced Monday will merge Novartis’ Pharmaceuticals and Oncology units into a combined business unit. He will also create a separate, US-centric sales organization for the combined unit. Three senior executives, including Novartis’ chief medical officer, will leave the company.
“We believe this streamlined structure will help drive value creation at Novartis,” Narachimhan said on an investor call.
This push for simplification is a common theme among big pharma. Pfizer lost weight in 2020, shedding a business unit that sells off-patent drugs.
Johnson & Johnson
(JNJ) announced plans to spin off its consumer healthcare division into a new company. GlaxoSmithKline is set to spin off the consumer healthcare joint venture it operates.
In December, Narasimhan explained that he believed the acceleration of biotechnology had made it difficult for highly diversified pharmaceutical companies to succeed. “What’s happened over the last seven, eight years is you’ve had this explosion of technology,” he said. “To be on the cutting edge of science, if you want to win in biopharmaceuticals, you need to focus your capital, your energy, and your management’s attention on this high-tech space.”
Corrections & Amplifications:
Novartis sold its stake in Roche for $20.7 billion. An earlier version of this story incorrectly stated that Novartis had sold the stake for $15 billion.
Write to Josh Nathan-Kazis at [email protected]