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Novartis to cut 2,000 jobs despite profit

Novartis AG is slashing 2,000 jobs in Switzerland and the United States to keep costs under control in the face of growing price pressures and the strong Swiss franc, the Swiss drug maker said on Tuesday.

The Basel-based group has already cut thousands of jobs and shut several sites, notably in Britain. It has also shifted its focus to specialty medicines over the past year in a bid to boost profitability and protect its bottom line.

The latest measures, which affect 1.7 per cent of Novartis' global work force and involve moving more commoditized business activities to less expensive countries, should allow the group to rake in annual savings of more than $200 million.

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Like its cross-town rival Roche, Novartis is having to deal with the double whammy of price pressures and a strong currency, which has pushed up the cost of doing business in Switzerland.

The two groups have stressed their commitment to investment in Switzerland, but they are both outsourcing routine manufacturing and other operations to cheaper countries.

Last month, the Swiss National Bank set a cap on the franc against the euro after Swiss companies warned the red-hot currency could force them to move jobs out of Switzerland.

Over the next three to five years, Novartis will close two sites in Switzerland and one in Italy. It will axe 1,100 jobs in Switzerland, Novartis said, sparking outcry from employee representatives there.

"Well hidden between the gleaming figures and record results, pharma giant Novartis today announced the biggest mass layoffs Switzerland has seen for several years," Swiss trade union Unia said in a statement, adding it will fight against the cuts.

Novartis will scale back and outsource technical research and development, data management, clinical trial monitoring, drug safety and epidemiology and drug regulatory affairs in Switzerland and the United States.

Some research activity will be moved from Switzerland to the United States, and Novartis will create 700 new jobs in low cost countries, the group said.

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The extra cost-saving measures were offset, however, by news that two lung drugs Novartis is developing with British partner Vectura will face a delay in the United States, a blow to a new franchise Novartis is seeking to build up.

"Over all, third-quarter results were on the weaker side, but part of this was driven by FX (foreign exchange)," Tim Anderson, an analyst at Bernstein, said.

Global drug makers have cut tens of thousands of jobs ahead of patent expirations on their top-selling products, while a growing squeeze on medicine prices by cash-strapped governments is adding to the pressure to cut costs.

The vast sales forces for major drugs going off patent, such as Pfizer's cholesterol fighter Lipitor, are among the most obvious targets for job cuts but pharmaceutical companies are also working hard to optimize manufacturing productivity by closing less efficient factories.

At some companies, research jobs, too, have been in the firing line, although Novartis says it remains committed to maintaining a world-class R&D operation.

Novartis Chief Executive Joe Jimenez warned on a conference call with journalists that pricing pressures were set to continue, adding he sees a negative impact of 5 per cent in European pharma this year.

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Jimenez also said it was the tough pricing environment rather than the strong franc that was behind the latest round of job cuts.

Novartis' announcement came as the group posted a 7-per-cent rise in its third quarter core earnings per share to $1.45, largely in line with expectations, boosted by solid demand for its newest products like multiple sclerosis pill Gilenya.

The group has one of the strongest pipelines in the industry, and this should help it to navigate patent losses on some of its key drugs, such as top-selling blood pressure medicine Diovan.

Novartis expects low double-digit sales growth in constant currencies for the group this year, based on the consolidation of recently acquired eye care group Alcon for four months in 2010. Growth in its pharma unit is seen in the low- to mid-single digit range.

It has also forecast that its core operating margin in constant currencies should improve, but it said it expected to take a restructuring charge of around $300 million in the fourth quarter.

The robust franc dented Novartis' third-quarter core operating income margin which slipped 1.7 percentage points to 27.7 per cent.

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