IHS Global Insight Perspective | |
Significance | Novartis is to make strategic changes to its U.S. operations, and will expand its Sandoz generics business with the acquisition of respiratory-focused U.S. generics company Oriel Therapeutics. |
Implications | The changes in the United States are focused on primary care activities and speciality areas where the company plans to expand its presence. The acquisition of Oriel gives Sandoz access to three asthma and chronic pulmonary disease generic drugs that are currently being developed, as well as the FreePath drug delivery and Solis disposable dry powder inhaler technologies. |
Outlook | Up to 250 layoffs will be made as a result of the changes, and a new head of U.S. operations is due to be appointed. This is the second generic-related acquisition within the last year. The move is focused at strengthening Sandoz's ability to produce generic drugs for respiratory diseases ahead of major patent expirations in this therapeutic area. |
Novartis to Overhaul U.S. Operations
Swiss pharma major Novartis has announced a number of organisational changes in its U.S. operations, according to an email sent to U.S. employees from the head of Novartis' pharmaceuticals division, David Epstein. The email was published on the pharmaceutical news portal Pharmalot, and the key changes are as follows:
Leadership: The current chief executive officer (CEO) of Novartis Pharmaceuticals and head of pharma for North America has announced his resignation; a replacement has not yet been named.
New Business Units: Four new business units will be created in primary care, Multiple Sclerosis (MS), psychiatry/neuroscience, and respiratory/transplant/infectious diseases. These new business units (excluding primary care) will replace the current speciality medicines operating unit. The MS sales forces will be expanded by 160 associates ahead of the anticipated U.S. launch of Gilenia (FTY720; fingolimod).
Primary Care Consolidation: The number of primary care operating units will be reduced from five to four, and these units will be overseen by the head of primary care, who has been named as Brain Goff. The primary care business unit will also be responsible for marketing activities, patient services, and mature products.
Layoffs: The changes will affect 383 positions; however, only 250 jobs cuts will be made.
Further Generic Expansion
In a separate development, Novartis' generics arm, Sandoz, has announced plans to acquire U.S. generics company Oriel Therapeutics for an undisclosed amount. The deal will give Sandoz access to Oriel's respiratory generic business portfolio, which focuses on drugs for the treatment of asthma and chronic obstructive pulmonary disease (COPD). According to Sandoz, Oriel currently has up to three generic drug development programmes for key branded drugs. In addition, Sandoz will also gain Oriel's novel FreePath drug delivery technology, and its Solis disposable dry powder inhaler.
Outlook and Implications
Changes in Novartis' U.S. operations come as little surprise, given the changes announced in its leadership structure earlier this year. In terms of the new business units, they all fit in well with Novartis' current core business activities, as well as future growth drivers. According to Epstein, the primary care business accounts for over half of the company's sales, and while many of its competitors are shifting their focus from this area, Novartis feels that this is the right time to strengthen its presence in the area, in order to create competitive advantage in the future. The creation of business units focusing on speciality drugs also fits into the company's strategy to strengthen its focus on the development of drugs for rare and difficult-to-treat diseases (see Switzerland: 22 December 2009: Novartis' CEO Reveals Company Will Aggressively Implement "Nichebuster" Strategy). The fact that extra resources will be redirected towards the MS unit shows that the company remains optimistic that it will secure positive U.S. FDA approval for Gilenia. Last week, new positive data were reported for Gilenia, and the drug has also been granted priority review by the FDA, cutting the approval time by 40%. If successful, the drug could become the first oral therapy for MS in the United States (see Switzerland: 13 April 2010: Novartis Announces New Positive Data for MS Drug Gilenia). The 250 layoffs are also broadly in line with the cost-cutting and restructuring activities that are taking place in the rest of the pharma industry. The only noteworthy surprise is the fact that the company will create a new business unit in the area of psychiatry/neuroscience. Meanwhile, major competitors such as U.K. pharmaceutical companies AstraZeneca and GlaxoSmithKline have said that they will scale back their operations in these areas.
This is the first acquisition deal that Novartis has announced since plans to fully acquire eyecare giant Alcon were announced. New CEO Joe Jimenez had hinted that post-Alcon, the company would seek smaller acquisitions that would complement and strengthen existing franchises such as generics, vaccines, and consumer health. This is the second generics-focused acquisition announced within the last year. In 2009, Novartis acquired Austrian EBEWE Pharma's speciality generic injectables business for an estimated US$1.2 billion. Although Oriel doesn't currently market any generic drugs, this investment is expected to strengthen Sandoz's respiratory generics activities in anticipation of patent expirations for key drugs in this segment. Quoting industry estimates, Novartis said that by 2016, an estimated 50% of the US$32-billion market for asthma and COPD is due to be hit by patent expirations, creating opportunities for generic competition. It is therefore likely that Oriel's focus will be creating generic versions of drugs such as Advair (salmeterol/fluticasone propionate; GlaxoSmithKline, U.K.), Symbicort (fumarate dehydrate and budesonide; AstraZeneca, U.K.), and Spiriva (tiotropium bromide; Boehringer Ingelheim, Germany), which are all due to face patent expiry in the near future. Oriel's inhalable device technology is also of interest to Novartis, given the difficulties of creating generic version of inhaled drugs.