Novartis downsizing in preparation for 'brutal' new world

Novartis Chief Executive Joe Jimenez is downsizing the company by cutting its smaller businesses in preparation for a "brutal" new world in healthcare spending.

The drugmaker's smaller-scale groups - animal health, vaccines and over-the-counter medicines - are being voted off the island, so to speak.

"I really wish we could make all three of those businesses global scale, but I think it's unlikely," Jimenez told Reuters.

With all conversations veering toward health care, and Jimenez's vision that the market could double in a decade, it would seem that expanding, not cutting, would be the way to go. But budget constraints, even with the growing population of sick people, would make treatment hard to afford.

"It's going to be brutal in terms of getting reimbursement," he said, adding that it's even more difficult for the sub-scale businesses.

The three smaller divisions make up only 10.5 percent of Novartis' overall revenue. They have already begun downsizing, agreeing to sell its blood transfusion testing unit to Spain's Grifols for $1.7 billion in November.

To improve returns on investment, companies besides Novartis are thinking outside the box and considering trades. In January, sources told Reuters that Novartis was discussing swapping its animal health and human vaccines business for Merck & Co's over-the-counter products unit. While it may seem more profitable just to sell the sub-scale faction, Jimenez insists that dealing with assets is easier than dealing with money.

"Cash is less attractive than being able to build a world-leading business that is going to create value that the cash will not," he said. "I think that's one of the reasons why you are hearing a lot about swaps. At the same time, swaps are very, very, difficult to execute."

Jimenez is optimistic that revamping the company will be advantageous. He is currently considering adding on to its three big business engines - its pharmaceuticals division, its Alcon eye care unit and its Sandoz generics business - and these deals could range from $2 billion to $5 billion in any year.