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Secret Scythe: Novartis Neglects to Mention 2,000 Layoffs

Novartis (NVS) is restructuring in secret, according to Contract Pharma, laying off thousands of employees but not disclosing the actions until up to six months later, or only announcing them locally. The company has cut 2,000 employees and axed or reduced operations at eight sites globally since Q4 2010.

Inconsistent disclosure seems to be a pattern with CEO Joe Jimenez. In November 2010, Novartis told Reuters it did not plan a program of layoffs similar to job cuts taking place at Roche (RHHBY). Nine days later, however, the company said it would cut 1,400 drug sales reps in the U.S. Novartis closed or reduced jobs at six factories in Q4 2010 with a loss of 600 more jobs but didn't mention them until its Q1 2011 earnings disclosure. That statement referenced "the four sites we announced in the fourth quarter of 2010," but the Q4 disclosure said only "we began implementation of a rationalization of our manufacturing facilities."

This pattern of declining to say you're laying people off and then doing it anyway hurts as much as it helps. Employees may not like losing their jobs, but they like living in limbo even less. Permanent limbo can kill morale and breed mistrust between supervisors and workers. Conversely, signalling clearly to your investors how you're going to reduce your costs can lift a company's stock.

Here's where the Novartis ax has fallen:

  • Reduced in Q4 2010, per CP: Liverpool, England -- adjusted operations, site is still in operation (vaccines)
    Marburg, Germany -- adjusted operations, site is still in operation (vaccines)
    Huningue, France -- divested (pharmaceuticals)
    Morocco - divested (pharmaceuticals)
    And on Nov. 30, 2010: 1,400 U.S. sales reps.
  • Axed in Q1 2011: 500 employees axed at Horsham, U.K.
    100 employees laid off at a manufacturing operation in Tlalpan, Mexico.
    Novartis "never put out a press release about this, however; it was confirmed by Novartis after being reported by news outlets," CP says.
  • Gone in Q2 2011, per its earnings disclosure: Jena, Germany -- divested (Sandoz generics)
    Cidra, Puerto Rico -- divested (CIBA Vision)
The ContractPharma reporter added:
When I asked why there had been no announcement or press release about these closings and adjustments, the reply was, 'They were all announced locally.'
Sub rosa restructuring isn't much of a secret, of course. The denizens of CafePharma, the anonymous gossip site for pharmaceutical workers has been buzzing about the job losses for months. Which is another reason why Jimenez's communications strategy could use improvement: Does Novartis really want its most disgruntled employees divulging more information about the company's restructuring than the CEO does?