BioPharma, Pharma

Novartis restructures to save $1B; pharma & oncology to merge into single unit

Novartis unveiled a corporate restructuring that is consolidating some operations in cash-saving moves expected to lead to $1 billion in annual savings. The shakeup means the departure of several key executives, including Chief Medical Officer John Tsai, who has held that role since 2018.


A wave of restructurings is sweeping across the life sciences sector and big pharmaceutical companies are not immune. Novartis announced its own corporate shakeup on Monday, a move the pharma giant expects will lead to at least $1 billion in annual savings within the next two years.

Along with the restructuring, Novartis also announced the departure of several key executives, most notably John Tsai, Novartis’s global drug development and chief medical officer since 2018. When Tsai is leaves next month, he will be succeeded by Sheeram Adradhye, a Novartis veteran who was most recently the chief medical officer of Dicerna Pharmaceuticals.

Novartis’s divides its operations into two reporting segments: Innovative Medicines encompasses its patent-protected prescription medicines while its Sandoz division houses generic drugs and biosimilars. That’s down from five operating segments seven years ago. Innovative Medicines is the larger division by far, posting nearly $42 billion in 2021 revenue while Sandoz accounted for $9.6 billion in sales. Sandoz is currently under a strategic review that could lead to a spinoff or sale of that business.

Speaking on a Monday conference call, CEO Vas Narasimhan said Novartis has been on a “transformation journey since 2014 from conglomerate healthcare company to a focused medicines company.” In 2015, Novartis sold its animal health division to Eli Lilly, which combined it with its Elanco unit, now a standalone and publicly traded animal health company. Novartis’s Alcon eye care division spun off as a standalone company in 2019. The pharma giant has continued to pour money into business development, amounting to about $31 billion spent on deals that strengthened its innovative medicines portfolio, according to an investor presentation. Novartis refilled its coffers by selling its stake in rival Roche for about $21 billion.

Within the Innovative Medicines segment, pharma and oncology have been housed in separate business units, each with its own leader. No longer. Pharma and oncology are being combined into a single unit. However, this unit will have separate U.S. and international commercial organizations, which the company said will increase business focus, competitiveness, and synergies. However, Novartis said that Susanne Schaffert, president of Novartis Oncology, is leaving the company.

Novartis is combining its corporate, R&D strategy, and business development into a single corporate function that will be led by a new executive role—chief strategy and growth officer. Lutz Hegemann, currently president of Novartis’s global health business, will step into this new position temporarily while Novartis searches for someone permanent. This part of the restructuring comes with consolidation of some corporate functions. The technical operations and customer and technology solutions units will be combined. With this corporate change, Robert Weltevreden, president of customer and technology solutions is leaving Novartis.

The Novartis restructuring comes several big pharma companies implement corporate streamlining efforts of their own. In 2020, Pfizer spun off its generic and older medicines, which were merged with Mylan to form new a company called Viatris. Last year, Merck spun out its older products into a separate company, Organon. Last fall, Johnson & Johnson announced that it is breaking out its consumer health operations as a separate company. leaving the remaining business to focus on medicines and medical devices. Meanwhile, GlaxoSmithKline is preparing to spin off its consumer health division this summer as a standalone company named Haleon. That company’s portfolio will span assets acquired from Pfizer and Novartis. In each case, the pharma giants are separating older, legacy products and streamlining the remaining business to focus on developming and selling innovative (and more profitable) new medicines.

Trimming corporate bloat is a key part of the Novartis restructuring. In the investor presentation, Novartis said its selling, general, and administrative expenses is 29% of sales, which is higher than the 25% median in a ranking of 15 peer pharma companies. In that ranking, Novartis is tied for 11th place. The SG&A savings will have minimal impact this year due to energy costs and inflation pressure in the supply chain, according to the investor presentation. But when the changes are fully in place by 2024, the company expects annual savings of at least $1 billion. Those saving will come mainly from efficiencies in operations, eliminating duplication in marketing and sales, and streamlining general and administrative expenses, the company said.

The Novartis pipeline currently has more than 20 assets on track for regulatory decisions in the next four years. The company also points to recent drug approvals that will contribute to revenue: cholesterol-lowering drug Leqvio was approved in December, bringing competition to products from Amgen and Regeneron Pharmaceuticals; late last month, the FDA approved Pluvicto, a radiopharmaceutical, for treating cases of advanced prostate cancer. Novartis said it expects to complete its Sandoz review by the end of this year. The company is scheduled to report its first quarter 2022 financial results on April 26.

Photo: Adrian Moser/Bloomberg, via Getty Images