Novartis Forms Shared Services Organization; Updates Manufacturing Plans

Novartis has announced that it has created a shared services organization, Novartis Business Services (NBS), which will consolidate a number of business support services, including procurement. The move, part of an ongoing productivity initiative, was reported by Novartis in its first-quarter 2014 results, which also included an update of its manufacturing restructuring efforts. The moves follows Novartis’ announcement earlier this week of its three-part transaction with GlaxoSmithKline (GSK) to acquire GSK’s oncology products, to divest its vaccine business (excluding flu) to GSK, and create a joint venture for consumer healthcare with GSK. Separately, Novartis signed a definitive agreement with Eli Lilly and Company to divest its Animal Health Division.

NBS will consolidate a number of business support services currently spread across divisions, including IT, Financial Reporting and Accounting, Real Estate & Facility Services, Procurement, Payroll and Personnel Administration and the Pharmaceuticals Global Business Services to allow the divisions to focus more on customer-facing activities.Employees who are in the divisions to be divested (Vaccines and Animal Health) or involved in the consumer healthcare joint venture with GSK (Novartis OTC) will be off-scope in relation to NBS activities. However, NBS will continue to provide some existing services to these divisions prior to closing of the transactions. Novartis has appointed André Wyss as Global Head of NBS, a newly created Executive Committee position reporting directly to CEO Joe Jimenez. Wyss has had a 30-year career with Novartis as an operating executive in Europe, the US, and emerging markets. The company reported that it also generated savings of approximately $300 million in Procurement in the first quarter by leveraging scale.

The company reported that it continues to optimize its manufacturing footprint with the previously announced closure of its pharmaceuticals manufacturing site in Suffern, New York in January 2014 and the planned divestment of its pharmaceutical manufacturing site in Taboão da Serra, Brazil. The company also announced the partial restructuring of its sites in Vacaville, California and Larchwood, Iowa, bringing the total number of production sites that have been or are in the process of being restructured or divested to 23. Related to this initiative, the company recorded exceptional charges of $65 million in the first quarter of 2014. This brings total exceptional charges to $580 million cumulatively since the program began in the fourth quarter of 2010.

In total, the company’s productivity initiatives generated gross savings that contributed approximately $540 million in the first quarter, putting it on track to achieve its productivity target of 3-4% of net sales in 2014.

Source: Novartis

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