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Novartis to Cut Over 2000 Jobs, Focus on Higher Value Drugs

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Novartis AG (NVS - Free Report) announced its plans to lay off about 1700 employees in Switzerland by 2022 as part of its strategy to consolidate its presence and invest in new manufacturing platforms. The company also plans to exit its Grimsby manufacturing site in the United Kingdom by the end of 2020, leading to about 400 job cuts.

The company is taking these steps as part of its strategy, which involves a decrease in the number of mass-produced products in order to focus more on innovative, specialized and personalized medicines. As a result, the company plans to shift its investment focus from traditional production technologies to more advanced manufacturing platforms. Novartis announced readjustments of its production units in Japan, the United States and other countries.

Shares of the company have increased 2.4% year to date compared with the industry’s gain of 6.7%.

Major job cuts are announced for Switzerland, which is the major production center of the company. Novartis will lay off about 1000 jobs in Basel, Schweizerhalle, Stein and Locarno in Switzerland. This reflects the recently announced construction of a site for the production of cell and gene therapies, which is likely to create 450 new positions in Stein.

Further, the company will slash 700 jobs in Switzerland in order to continueimplementation of its service business strategy to transfer managerial and transactional activities to the five existing service centers. The planned reduction will be spread over a four-year period, and Novartis will engage in early dialogue and consultations with staff representatives and managers.

Taking into account the impact of the planned restructuring and the already announced spinoff of its eye care division Alcon, Novartis expects to maintain about 10% of its global workforce in Switzerland, while the market represents less than 2% of its total sales.

Once the planned changes are implemented, Novartis' workforce in Switzerland in 2022 is expected to be about the same as in 2008. The company is committed toward creating new technology platforms and investing more than 3 billion Swiss francs in research and development, each year.

The company announced that the plan to exit its Grimsby manufacturing site ispart of a "global review" of its manufacturing operations andnot linked to the decision of the U.K. to leave the European Union.

Novartis is looking to transform into a core pharma company with focus on additional therapies like gene therapy. This should boost profits and margins for the company.

Zacks Rank & Stocks to Consider

Novartis is currently a Zacks Rank #1 (Strong Buy) stock.

Some top-ranked stocks in the same space are Roche Holding AG (RHHBY - Free Report) , Bristol-Myers Squibb Co. (BMY - Free Report) and Eli Lilly and Co. (LLY - Free Report) .While Roche carries a Zacks Rank #1, Bristol-Myers and Lilly carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Roche’s earnings per share estimates have increased from $2.14 to $2.24 for 2018 and from $2.15 to $2.28 for 2019 over the past 60 days. The stock has rallied 11.8% in the past three months.

Bristol-Myers’ earnings per share estimates have increased from $3.56 to $3.62 for 2018 and from $3.77 to $3.82 for 2019 over the past 60 days. The company delivered a positive earnings surprise in three of the trailing four quarters with an average beat of 6.39%. The stock has rallied 13.5% in the past three months.

Lilly’s earnings per share estimates have increased from $5.37 to $5.47 for 2018 and from $5.62 to $5.73 for 2019 over the past 60 days. The company delivered a positive earnings surprise in all of the trailing four quarters with an average beat of 10.15%. The stock has rallied 24.8% in the past three months.

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