Commercial Novartis to combine its pharma and oncology operations to...

Novartis to combine its pharma and oncology operations to save $1 Billion

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Novartis has opted for a corporate restructure of operations to aid in cash-saving. This involves the combining of the oncology and pharma departments to form Innovative Medicines, which is estimated to save the company $1B within the coming 2 years.

This restructure will also mean that prominent executives in the departments will be making a departure, including the Chief Medical Officer (CMO). The leaving CMO, John Tsai, will be succeeded by Sheeram Adradhye who had been the CMO of Dicerna Pharmaceuticals as well. 

The company is following the larger life sciences sector restructuring trend that is ongoing. 

Down from its once five segments, Novartis’ operations is currently divided into two segments; Innovative Medicines and Sandoz division. The innovative medicines division will be responsible for prescription medicines which are patent protected and the Sandoz division operates biosimilars and generic drugs.  

Innovative Medicines raked in over $40 billion of revenue last year while Sandoz posted over $9.5 billion in sales. Sandoz is under strategic review and it is possible that it will be sold. 

6 years ago Novartis made a sale to Eli Lilly for its animal health division. Eli converted this division into an animal health company which is publicly traded. Similarly, in 2019, Novartis’ eye care division became a standalone company. 

Novartis continues to invest in business development and expand its drug portfolio by spending over $30 billion for this purpose. The company was able to recover some of this amount through a sale to Roche for $21 billion. 

Combining the pharma and oncology units will lead to a few departures, including that of the president of the oncology division. However, the company believes that this move will improve their competitiveness and business direction. The combined division will have both a U.S. organization and an international organization. 

The company will further combine its departments for R&D, corporate and business development. In addition, the technical operations and technology solutions units will be merged as well, with the technology solutions president making an exit. 

Novartis is not alone in its restructuring. Last year, the pharma giant Pfizer merged its generic drug department to form Viatris, a new company with Mylan. Merck and Johnson & Johnson also created similar companies. 

GlaxoSmithKline has broadened its company portfolio and acquired assets from Pfizer as well as Novartis, while also trying to convert its consumer health division into a seperate company.

In this way, larger pharmaceutical companies are moving to focus on the development of newer, more innovative drugs.

Novartis has estimated the annual savings of $1 billion to materialize from next year, as this year the savings will be mitigated by inflation and energy costs. 

Novartis had been operating at its administrative, selling and general expenses as 29%  of sales, which is over the median ranking in big pharma companies. 

Further sources of Novartis’ revenue include Leqvio, cholesterol-lowering drug and Pluvicto, prostate cancer drug. 

Novartis will report it’s financial results for the first quarter of this year at the end of April while the Sandoz review will be completed by end of 2022. 

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