Novartis (NYSE:NVS) is cutting nearly 2,000 jobs in the United States. The reason? The looming patent expirations that hang heavy on all big pharma stocks from Eli Lilly (NYSE:LLY) to Merck (NYSE:MRK) to Pfizer (NYSE:PFE). The layoffs at Novartis are in anticipation of the patent loss for top-selling blood pressure drug Diovan, which should lose ground to generics as soon as this year.
Across the second quarter, Novartis will cut 1,630 jobs in its U.S. field force and 330 positions as it reorganizes general medicines operations. Restructuring measures associated with these job cuts will cost Novartis about $160 million in the first quarter of 2012, but lead to annual savings of around $450 million by 2013 according to the company.
Investors should take note. Help may not be on the way in the immediate term for NVS stock, since Novartis will book a one-off charge of $900 million in the fourth quarter after a clinical trial of a new blood pressure pill failed miserably. Patients taking the Novartis medication Rasilez actually did worse than placebo. Not good.
Ugly job cuts are the order of the day in big pharma as patent expirations suck revenue out of the once dominant names in the biz.
By The Wall Street Journal‘s estimate, Merck’s announcement in July to trim up to 13,000 jobs amounted to a total workforce reduction of 30% since the drugmaker’s merger with Schering-Plough in 2009.
Even more disturbing are cuts that affect drug pipelines. Unlike Merck, Pfizer aimed deep spending cuts at its R&D operations in 2011, aiming to reduce its research budget by $1.5 billion.
Novartis is the latest health care company to offset its lost revenue with deep job cuts. And just like the Diovan patent expiration, you can be sure that as more blockbusters lose exclusive rights in the next few years, we will see more layoffs like this.
– Jeff Reeves, InvestorPlace.com editor