Novartis started on a productivity campaign in 2010 in part to reduce the size of its manufacturing footprint to something more cost comfortable for the Swiss drugmaker. Since then the company has closed or sold about 20 of its 100 production facilities, with more to come.
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| Joe Jimenez |
The productivity program, which cuts across the entire company, saved Novartis ($NVS) $2.8 billion last year, CEO Joe Jimenez said Wednesday as he discussed the company's tepid fourth quarter and 2013 financial results. The most recent target for manufacturing cuts, he said, is a plant in Suffern, NY, which produces Diovan for the U.S. The company is planning for the long-delayed launch of a generic of Diovan in April and so will not need the same level of production. The drug went off patent in 2012, but the cascading manufacturing problems faced by generic drugmaker Ranbaxy Laboratories have delayed the launch of a copy of the blockbuster blood-pressure drug.
The company said last week that the shutdown process at Suffern would start in the second quarter and stretch through at least 2016. About 525 people work at the facility. Some will transfer to handle certain "necessary functions," a spokeswoman said, and the rest will be let go. Plans will conclude with transferring all equipment at the site, demolishing the plant and putting the land up for sale, she said.
But the Suffern plant is not the only one to get the heave-ho. In December, the company announced it would shutter an Alcon plant in Canada this year, slashing 300 jobs in Mississauga, Ontario, and shifting its production to a more efficient facility in Texas. And last April, 300 more workers found out they would lose their jobs at a struggling Lincoln, NE, consumer healthcare plant.
Jimenez alluded during the company's earnings webcast to FDA issues the company has faced at the Lincoln plant and elsewhere. He said a companywide focus on improving quality had paid off, and Novartis restarted production in Lincoln last year after FDA inspectors signed off on the facility. He said that two of the three Sandoz sites that were operating under an FDA warning letter are now FDA-compliant, and the company is awaiting word from the agency about the third.
Jimenez said Wednesday that half of the productivity savings the company realized last year were in "procurement," getting better deals from strategic suppliers. But the search for cost savings continues and finding a better sized manufacturing footprint remains key. In fact, during an investor day session in November, CFO Harry Kirsch said the company is roughly in the middle of it, and that "the reductions will continue."
- here's a SeekingAlpha transcript of the earnings webcast
- and the investor day presentation
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