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Novartis CEO says reviewing Swiss costs after franc shock

January 23, 2015
Life sciences
(Reuters) – Novartis will review its Swiss cost base after the country’s central bank scrapped a cap on the franc last week, sending the currency soaring, the Swiss drugmaker’s chief executive said on Thursday.
 
“We’ll have to take a hard look at what’s in Switzerland and what could move outside,” Joe Jimenez told Reuters on the fringes of the World Economic Forum in Davos.
 
The company has just 2 percent of its sales in Switzerland but 12 percent of its 2013 costs were in the country. Jimenez stressed Switzerland would remain Novartis’ home base, reflecting the group’s long history and commitment to its Basel headquarters.
 
As a major international business with operations around the globe, Novartis is better protected than smaller Swiss firms from the franc’s appreciation, but the currency shockwaves have hit all Swiss blue-chips to some degree.
 
“We report in U.S. dollars, so obviously when the Swiss franc appreciates we rethink our cost base,” Jimenez said.
 
Novartis will report its full-year results on Jan. 27, when he is likely to be quizzed further by investors on the fallout from the franc’s sharp move.
 
The fundamentals of Novartis’ operations, however, remain strong, helped by recent successes with new drugs that promise to bring in billions of dollars in extra sales.
 
Jimenez said his company was enjoying an upsurge in productivity as a deeper understanding of disease leads to novel treatment approaches, resulting in an increase in drug approvals across the industry.
 
“What’s happening is the explosion of data is allowing us to target diseases in new ways that we never thought possible. I think we are at the beginning of significant new innovation through the industry and especially at Novartis,” he said.
 
The U.S. Food and Drug Administration on Wednesday approved Novartis’ new psoriasis drug Cosentyx, which Jimenez said should bring in annual sales of more than $1 billion, while its heart failure treatment LCZ696, which is expected to be approved later this year, should generate multi-billion-dollar revenues.
 
The drug industry saw a record wave of deal-making in 2014 and Jimenez said Novartis would look at bolt-on acquisitions, following the conclusion of a $20 billion asset swap with GlaxoSmithKline announced last year.
 
“What we’ve done at Novartis is put ourselves in a position where we can participate in future M&A but we don’t have to,” he said.
 
(Editing by Alex Smith and John Stonestreet)

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