Wednesday, October 29, 2008

New Prescription for Growth at Novartis

  • As a sales-focused pharmaceutical company, Novartis AG (NVS-$50.83) has always depended, in part, on influencing physicians' prescribing habits through a reach-and-frequency contact model. National in scope, the business strategy required field representatives to make regular visits and calls to customers, correlating frequency of product sales calls to size of the customers' practices and/or value of targeted MDs as local opinion leaders. Recognizing the more restrictive relationship that has developed between healthcare providers and drug makers -- some groups no longer will even accept pens with business logos -- Novartis has announced a new commercial model for its U.S. General Medicines Business, as described in its FORM 6-K filed with the SEC last week:

    As the US market continues to diversify and become more complex, an innovative new program called "Customer Centric Initiative" is underway to implement a new regional US business model that will better address customer needs and differences in local market dynamics. Five new regional units will be created that have cross-functional responsibility for the full primary care product portfolio, replacing the nationally managed sales forces.

Strategies to improve shareholder value, increase profitability, and improve top line growth are nothing new -- companies just change the buzzwords:

  1. In December 2007, Bristol-Myers Squibb implemented its "Productivity Transformation Initiative," which included a 10 percent cut in its workforce, or about 4,300 people.
  2. In 2006, Merck announced a new global supply chain initiative, known as the "Merck Production System." which resulted in the loss of 7,000 positions in manufacturing and other divisions.
  3. And, last month, Schering-Plough announced plans to eliminate about 1,000 sales representatives, or about 20 percent of its field force -- a part of its "Productivity Transformation Program" launched in April 2008.

As for Novartis, its customer-centric initiative will result in the loss of about 550 U.S. sales jobs in a "socially responsible manner." The new organization will start on January 1, 2009. A one-time charge of approximately $20 million will be taken in the 2008 fourth quarter, with annual cost savings of $80 million anticipated from 2010.

Editor David J Phillips holds a financial interest in Bristol-Myers Squibb common stock. The 10Q Detective has a Full Disclosure Policy.

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