|Novartis CEO Joseph Jimenez|
Novartis ($NVS) may have a long way to go before it's done cutting its blockbuster R&D budget.
With a major strategic review underway, Novartis CEO Joe Jimenez told analysts that its massive drug research operation still offers a fresh source of spending cuts--even after a number of moves aimed at concentrating more of its R&D operations in the company's main research hubs in the U.S., Europe and Asia.
"Jimenez emphasized a zero tolerance policy for budgets that include declining operating margins given performance over the last two years," writes Leerink analyst Seamus Fernandez in a note to investors. "He highlighted two opportunities for cost containment--G&A and pharma R&D spend--with an emphasis on reducing duplicate G&A functions and reducing what has historically been a relatively unconstrained budget in pharma R&D."
That "unconstrained" research budget has ranked as one of the largest in the pharma industry for years now. In 2013 Novartis spent $9.8 billion on R&D, up a half billion dollars from the year before, when Roche ($RHHBY) edged out the company for the most money spent on research. While pharma rivals like Pfizer ($PFE), AstraZeneca ($AZN) and more recently Merck ($MRK) announced plans to reorganize research, chopping billions of dollars from their budgets, Novartis remained largely resistant to the trend, content to spend more to back a large pipeline of new drugs.
Over recent months, though, Novartis has begun trimming away at its R&D budget. A few weeks ago word spread that Novartis would cut about 500 staffers at its headquarters in Basel. Last fall Novartis moved to shutter a respiratory research center in Horsham, U.K., and later said it would drop its work on topical dermatology treatments in Vienna, laying off staffers there as it also closes a biotherapeutics development unit in La Jolla, CA, and relocates its oncology R&D work in Emeryville, CA, to the booming Boston-area biotech hub. A total of about 500 research jobs were slashed at the time as Novartis made plans to add 175 respiratory and cancer jobs to its booming operations in Cambridge, MA, where the company has a staff of 2,400.
Novartis has made a habit of insisting that it was often adding as many jobs as it planned to cut. But Jimenez's insistence on finding fresh areas to cut in R&D could well start shrinking the payroll.