Novartis to Seek Innovation and Efficiencies

Nov 24, 2010

On Nov. 17, 2010, Novartis (Basel) disclosed its long-term business strategy, which emphasizes diversification in what the company described as high-growth healthcare segments. This emphasis results from healthcare reform and pressure to reduce the prices of medicines, according to a Novartis press release. The company will continue to focus its diversified portfolio on the key sectors of pharmaceuticals; eye care; its generic-drug business, Sandoz; consumer health; and vaccines and diagnostics.

To increase its profits and cash flow, Novartis will pursue various productivity initiatives in an attempt to boost efficiency in manufacturing, sales and marketing, and procurement. These plans include a review of the company’s manufacturing global footprint and the creation of manufacturing centers of excellence to improve the company’s production network. Novartis aims to “optimize the cost structure across divisions and enhance utilization rates at strategic sites to 80% of capacity,” according to the press release.

In addition to the adjustments to its manufacturing operations, Novartis will reallocate its marketing and sales resources geographically and simplify current processes. The company also will examine its procurement area “as an additional major source of continued productivity improvement and savings,” according to the press release.

Novartis hopes that the combined productivity initiatives will free up resources for reinvestment into its pipeline. Research and development (R&D) is the basis of the company’s long-term strategy, and Novartis plans to be among the industry’s biggest investors in this area as many competitors cut their spending on innovation. Novartis will respond to patent expirations with innovation in an effort to increase its sales. Specifically, Novartis’s goal is to increase the percentage of specialty and oncology products in its portfolio from more than 65% to more than 75% by 2015. The company plans to complete eight regulatory submissions in 2010, 13 in 2011, and nine in 2012.

As it invests in innovation, Novartis also will try to expand the use of and establish new indications for its current drugs. One of the company’s aims is to expand Sandoz’s position in biosimilars and in differentiated generics such as oncology injectables and respiratory drugs. Novartis predicts growth in its vaccines business, primarily in products to combat influenza and meningitis.

Finally, Novartis plans to keep investing to scale up its business for long-term growth, particularly in emerging markets such as Brazil, Russia, India, and China. The company hopes that its productivity initiatives will help free up working capital for these investments.