Novartis aims to save $1bn by 2020 with integrated manufacturing plan

25-Apr-2016 - Last updated on 26-Apr-2016 at 07:19 GMT

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The savings will come from centralising manufacturing services and will complement the firm’s cost-saving business division launched last year.

In January this year, the Swiss Pharma giant announced plans for a new business intended to centralise its manufacturing operations based on its technology platforms.

While this Technical Operations (TechOps) organisation within Novartis’ operations is not set to go live until July, CEO Joseph Jimenez has estimated it will drive “significant saving,” during a call discussing Q1 results.

“We've put a number of a $1bn out by 2020 and that's going to help us with continued margin expansion for the company,” he told stakeholders, adding this will be done through focusing divisions, integrating drug development and centralising manufacturing.

“We've already transferred the Ophtha Pharma [franchise] from Alcon to [the Pharma division], and that took place April 1. We have also transferred just under a $1bn of mature products from Pharma to Sandoz; that also took place April 1.”

The unit will be supported by new global head Juan Andres who Jimenez said is building out his team for a July 1 launch, and will also be responsible for Novartis’ manufacturing footprint initiative which has seen more than 25 facilities restructured or divested since 2010.

100 suppliers to 3

The TechOps unit will also complement the Novartis Business Services (NBS) division which was created in July 2014 in order to reduce costs by up to $6bn by using shared service organisations across the company’s large manufacturing network.

Jimenez said his firm had made good progress at identifying these synergies, and during the past quarter the NBS unit has consolidated Novartis’ facility services third-party suppliers reducing the total number of suppliers from around 100 to just three.

“The leverage that we have in terms of offering these companies significantly greater business, we're able to take costs down considerably.”

He continued: “We've started building out our five global service centres, which will help us lower costs in the long term. And we're expanding NBS to include in-country commercial efficiency across divisions, country-by-country.”

For the first quarter 2016, Novartis reported net sales of $11.6bn across all divisions, a 3% drop year-on-year. Net income dropped 13% to just over $2bn.