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Novartis, Pharmaceutical Giant, Plans 2,000 Layoffs Despite Profit Increase

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GENEVA -- Swiss pharmaceutical giant Novartis AG said Tuesday it will cut 2,000 jobs as drug prices come under pressure from governments seeking to reduce health care budgets.

Novartis, which posted a 7 percent increased third-quarter net profit of $2.49 billion Tuesday, said 1,100 jobs will disappear in Switzerland, with a further 900 to be cut in the United States. Some 700 new positions will be created in low-cost countries such as India and China, resulting in a net loss of 1,300 jobs.

"The health care industry is facing a difficult external environment," Chief Executive Joseph Jimenez told reporters in a conference call. "The financial crisis has become a debt crisis and you've got governments around the world that are pushing down prices of pharmaceuticals and other health care products."

Novartis shares fell 2 percent to 50.75 Swiss francs ($57.71) by late morning on the Zurich exchange.

In Europe, prices had dropped by about 5 percent already this year, with no end in sight, said Jimenez. "We can't absorb these price cuts without taking action."

He said Novartis remains better placed than many of its rivals to weather the price cuts as reimbursements from government entities only account for 55 percent of its sales, compared with an average of 80-90 percent among peers.

The Basel-based company plans to shut two manufacturing sites in Switzerland, transferring production to other locations or to third parties. Some research and development jobs in Switzerland and the United States also will be outsourced, resulted in estimated annual savings of over $200 million.

Despite the price cuts, Novartis said sales grew 18 percent to $14.8 billion in the July-September period, with new products contributing about a quarter, or $3.6 billion. The purchase of eye care company Alcon also added to Novartis' strong sales.

The maker of hypertension drug Diovan and anticancer treatment Glivec – known as Gleevec in the United States – noted that the weakness of the U.S. dollar against other major currencies helped lift sales figures. In constant currencies, sales increased 6 percent.

One strong launch was the oral multiple sclerosis medicine Gilenya, which racked up sales of $153 million in the third quarter.

Asked about a possible rival product, known as BG-12, that appears in initial trials to be a potent drug against MS, Jimenez said competition has already been factored into the company's expectations for Gilenya.

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