May 17, 2016 / 4:07 PM / a year ago

Novartis splits drugs business into two, pharma chief to leave

The logo of Swiss drugmaker Novartis is seen at its headquarters in Basel, Switzerland October 22, 2013. REUTERS/Arnd Wiegmann/File Photo

ZURICH/LONDON (Reuters) - Novartis is splitting its pharmaceuticals division into two business units, one focused on cancer and the second on other drugs, while switching out its current pharma head in the second high-profile management reshuffle this year.

David Epstein, the American head of Novartis Pharmaceuticals and a 27-year veteran with the group, will leave the company to “explore new challenges from the U.S.”, Novartis said.

Epstein’s re-location to the United States implies he is not in the running to replace Andrew Witty as chief executive of British drugmaker GlaxoSmithKline next year, as some have speculated. GSK has said it expects to choose a new CEO towards the end of the 2016.

Novartis’ reorganization of its main drugs unit, which accounts for about two-thirds of its $49 billion in annual sales, shows the growing importance of oncology to the company, after it bought GSK’s marketed cancer drugs for $16 billion last year.

It comes as Novartis struggles with the patent expiration of blood cancer drug Glivec and slower-than-expected revenue from its new heart failure medicine, Entresto.

Epstein is the second high-ranking Novartis official to exit within months. Ex-Hospira chief Michael Ball replaced Jeff George at the company’s struggling Alcon eye care business in January as its sales declined again.

“Novartis expects this change to help drive our growth and innovation strategy, with an increased focus and improved execution,” the company said in a statement.

“The new structure reflects the importance of oncology to Novartis following the successful integration of the oncology assets acquired from GlaxoSmithKline.”

Industry analysts said the division should improve the transparency of the component parts of the drugmaker’s business and could help convince investors of the value of Novartis’ large oncology operations.

Cancer drugs tend to enjoy high profit margins and the therapy area is highly valued by investors at present, thanks to recent advances in fighting the disease and the premium prices commanded by cancer treatments.

“A split makes sense because oncology now has critical mass, following the GSK deal, and oncology is in many ways becoming a differentiated business from the rest of pharmaceuticals,” said Mick Cooper, an analyst at equity research firm Trinity Delta.

HEART DRUG FALLS SHORT

Epstein, who took over the pharmaceuticals division in 2010, will be replaced by two people.

Paul Hudson, currently AstraZeneca’s North America head, will run the pharmaceuticals business, and Bruno Strigini, head of Novartis Oncology, will lead the newly created oncology business unit.

A Novartis spokesman said on Tuesday the divisional reshuffle will not result in “big costs”, though he did not name a figure.

Additionally, a small number of jobs will be moved as part of the changes to the Basel headquarters from Novartis facilities in New Jersey in the United States.

An AstraZeneca spokesman said Hudson had made a positive impact during his time at the British company and his decision was a personal one. He declined to comment further.

Novartis shares have fallen 16 percent this year, due in part to disappointment over the performance of Entresto, which had been hailed by Epstein as a breakthrough for heart failure but has fallen well short of sales expectations.

Novartis still expects the drug will eventually top $5 billion in annual sales, but Epstein disappointed analysts earlier this year when he said 2016 sales would be just $200 million, far lower than estimates, as insurance companies resist paying and U.S. doctors are slow to prescribe.

Novartis said last month it was increasing the marketing push behind Entresto and hiring more sales people to get over the slow take-up.

Before taking over at Novartis Pharmaceuticals six years ago, Epstein was in charge of the group’s cancer portfolio. He originally joined Sandoz, one of the drug companies that merged to form Novartis, in 1989.

Reporting by John Miller, editing by Susan Thomas and Alexandra Hudson

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