Novartis AG (ADR) (NYSE:NVS) Will Not Skimp Research Spending

Novartis AG (ADR) (NYSE:NVS) is pushing for greater efficiency to appease investors through better returns. The company has already started a number of cost-cutting initiatives. However, Novartis does not intend to hold back research and development spending. Instead, cuts in some other segments of the company should be able to keep overall spending flat or down even if more money is channeled to R&D.

Are expert analyst predicting a future consolidation of NVS?

Market pressure

Novartis AG (ADR) (NYSE:NVS) is seeking to become more productive, building a strong pipeline and driving more value for shareholders. The company has already started a massive reorganization effort to save money and boost growth. Novartis is not alone in the aggressive push to cut bloated spending. Big Pharma are facing widespread patent expiration on their blockbuster drugs while competition has also intensified. The result of that has been a decline in revenue. Further to that, health care providers are also pushing for lower drugs costs, a step that is complicating matters for drug companies given the high cost of developing new drugs.

R&D spending

While Novartis tries to streamline its system to curb expenses, the company does not intend to withhold spending on research and development. Instead, the company hopes to spend more in new drug projects to so that it can bring new blockbuster labels to market. Novartis is set to launch its heart drug candidate known as LCZ696 later this year. Analysts have cited that the drug could bring in more than $10 billion in annual sales.

To ensure that R&D budget is not affected, Novartis AG (ADR) (NYSE:NVS) is focused on trimming back-office expenses. Following the creation of the new unit known as Novartis Business Services, the company managed to cut procurement costs by $1.6 billion in 2014. According to the CEO, Joe Jimenez, there is room to do more, and that is just the beginning.

Asset swap

Novartis AG (ADR) (NYSE:NVS) recently completed a $20 billion asset swap deal with GlaxoSmithKline plc (ADR) (NYSE:GSK). The development allows Novartis to gain greater focus on core businesses, which include branded drugs and low-cost generics.

Novartis AG (ADR) (NYSE:NVS) is currently trading at $96.29 after losing 1.73%.

Cook Laurie

Cook Laurie

Laurie, a long-time member of the US Markets Daily general assignment reporter who has covered a variety of subjects from breaking news to investigative features, from stock markets to politics, and from neighborhood small business to global warming.