Continuing the cost-cutting trend which was started by its US
counterparts, Swiss company
) recently announced that it will lay off 1,960 employees in the US
in anticipation of lower revenues from two of its hypertension
Novartis' blockbuster hypertension drug Diovan loses patent
expiration in the US in September 2012. Diovan, which recorded
revenue of $1.4 billion in the third quarter of 2011, will greatly
weigh upon Novartis' top line once its patent expires.
Moreover, global sales of another hypertension medicine,
Tekturna (marketed as Rasilez outside US), are expected to be hit
by the failure of the ALTITUDE study. In December 2011 Novartis
announced that it has stopped the ALTITUDE study which was
investigating Rasilez/Tekturna in a high-risk population of
patients with type-II diabetes and renal impairment following
recommendation from a Data Monitoring Committee. As a result,
Novartis is recommending against the use of Rasilez/Tekturna-based
products in combination with an angiotensin converting enzyme (
) inhibitor or angiotensin receptor blocker (
) in hypertensive patients with diabetes. It has ceased promotion
of any such combination medicines.
The layoffs will impact mostly Novartis' pharmaceuticals
business in the US with a reduction of 1,630 positions in the field
force and another 330 positions at the US headquarters. The layoffs
will take effect in the second quarter of 2012.
The US workforce reduction will result in a charge of $160
million in the first quarter of 2012 but will lead to savings of
approximately $450 million by 2013. Moreover, expectations for
decline in sales of Rasilez/Tekturna will result in a charge of
$900 million in the fourth quarter of 2011.
Last week, Novartis issued a voluntary recall for certain
over-the-counter products in the United States, following the
temporary suspension of operations from its Lincoln, Nebraska
facility. Novartis plans to take a charge of $120 million in the
fourth quarter of 2011 to account for the recall.
Currently, we have a Neutral recommendation on Novartis. The
company carries a Zacks #4 Rank ("Sell" rating) in the short run.
Though pleased with Novartis' wide range of products and its
efforts to diversify further, as is evident by the acquisition of
eye-care company Alcon, we prefer to remain on the sidelines in the
long term due to the imminent patent cliff faced by the company.
The latest workforce reduction justifies the short-term sell rating
on the stock.
NOVARTIS AG-ADR (
): Free Stock Analysis Report
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