Novartis Targets Production Streamlining as U.S. Prices Decline

(Bloomberg) -- Swiss pharmaceutical company Novartis AG wants to increase its operating margins by making production and other processes more efficient as it positions for possible further declines in U.S. drug prices, its chairman said in an interview.

Joerg Reinhardt told the newspaper NZZ am Sonntag that his company is taking steps to increase its operating profit margin towards 35 percent in no more than five years, from 32 percent, and is closely watching developments in the U.S.

“Many of our 68 plants aren’t being fully utilized. We’re trying to achieve an optimization globally,” Reinhardt said. “In other areas too, we need to operate simply and more efficiently, and that includes centralized services as part of our Business Services organization.”

More broadly, “we are preparing for the fact that in the medium term there will be changes in the U.S. pricing system that will affect the entire pharma sector,” said Reinhardt.

While drug prices in Europe are rising marginally if at all, those in the U.S. have been declining for a year, he said.

Basel-based Novartis makes a range of pharmaceutical and consumer healthcare products. Among its biggest-selling pharma lines are the multiple sclerosis drug Gilenya and Cosentyx, which is used to treat plaque psoriasis and psoriatic arthritis.

To contact the reporter on this story: Catherine Bosley in Zurich at cbosley1@bloomberg.net

To contact the editors responsible for this story: Fergal O'Brien at fobrien@bloomberg.net, Ros Krasny, Bob Brennan

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