Sandoz gives Novartis a boost, but 3 plants still get the boot

Novartis's generics business Sandoz provided the key bright spot in an otherwise tough earnings report for the Swiss pharma, with revenues up 10%. But the starring performance did not keep the manufacturing side of Sandoz from getting spanked, with three of its plants now targeted for closing and about 770 jobs lost.

Sandoz head Richard Francis

Richard Francis, head of Sandoz, told analysts in the earnings call Tuesday that the three plants include two in Germany and one in India, but was not specific about where they were. Novartis ($NVS) spokeswoman Elizabeth Power explained a plant in Gerlingen will be shut by the end of 2016 and the work, mostly packaging tablets and capsules, will be moved to other facilities in Europe. Most of that works goes to Barleben in Sachsen-Anhalt in Germany and to Strykow in Poland, where Sandoz this year completed a $46.9 million project to add new packaging lines.

"Due to extreme cost pressure in the generics market, this packaging plant can no longer be operated cost-efficiently and is no longer competitive," she said about the Gerlingen plant.

Sandoz's Barleben, Germany plant

Sandoz will also shut its plant in Frankfurt by the end of 2016, Power said, because prices on the cephalosporin active pharmaceutical ingredients (APIs) and intermediates made there have collapsed as Asian competitors have dumped excess capacity on the market. Because that situation is unlikely to change, that work is just going away.

Power said there are about 600 jobs at the two plants and Novartis is sorting things out with the work councils over the cuts. The drugmaker also chalked up $180 million in charges for the quarter related to shutting these two plants. That in turn shaved 10% off the generic unit's operating income, reducing it to $472 million.

But that does not end the pain for Sandoz manufacturing. Since the second quarter closed, a third Sandoz plant has been identified as getting the ax. It will shutter a manufacturing plant in Turbhe, Maharashtra, in India and lay off 170 workers, also by the end of next year. The site manufactures APIs and antibiotics. Sandoz said in a statement that it was transferring the work to other sites in the country. It has manufacturing facilities in Kalwe and Mahad.

Called on in the earnings call to explain the plant closings, Francis told analysts, that "making sure we have highly efficient cost effective production" was extremely important and that the three sites were not measuring up, according to a transcript of the call from Seeking Alpha. "A difficult decision we have to make, but one that we believe that's right for the business moving forward to ensure that we're competitive and continue to drive profitability in this very competitive segment," he said.

It was also a difficult quarter for Novartis which said that in large part due to currency challenges, its Q2 sales slipped to $12.7 billion, down 5%.

- here's the earnings release 
- read the Seeking Alpha transcript

Related Articles:
Novartis looks past dim Q2 results to new Glatopa, Entresto launches
Novartis' Sandoz expands Poland plant with packaging facility
Novartis' Sandoz puts India plant on chopping block