Case-1: Novartis To Trim Or Not To Trim: That Is The Question The issue had come up again and again in various management meetings and company seminars. Novartis had too many products and needed to reduce the product proliferation that had occurred. Thomas Ebeling. Chief Operating Officer, Novatis Pharmaceuticals, wondered what he should do. The merger of Ciba-Geigy and Sandoz to form Novartis on December 20, 1996 had resulted in a significant increase in the pharmaceutical product portfolio of Novartis's Pharma Sector. Combining the pharmaceutical product lines of Ciba- Geigy and Sandoz had given Novartis a leadership position in several therapeutic areas, including immunology and inflammatory diseases, as well as strong positions in central nervous system disorders, cardiovascular diseases, oncology, dermatology, and astma. Novartis now had approximately 250 product brands (such as Sandimmun, Voltaren, Lamisil, and Foradil). The sales volumes of each of the different brands, however, were very different. In 1999, the top 20 brands accounted for 79% of pharmaceutical revenues while the remaining brands yielded 21% of revenues. Novartis Exhibit I presents sales, anticipated sales growth rates, cost and other data for the 50 smallest global base business brands that account for CHF 422 million in sales (or approximately 2.7% of pharmaceutical product sales) in 1998. In addition to the base business brands listed in Novartis Exhibit I, 15 other product brands contributed an additional CHF 2.4 million in revenues. Although these products generated very small revenues, they satisfied some important medical needs. For example, Visken had sales of CHF 114,000 in South Africa but it was unique among betablockers regarding the effect on serotonin la receptors for the onset of antidepressant action. Novartis Exhibit subdivides costs into variable costs and fixed costs. A variable cose changes in total in proportion to changes in the related level of total activity or volume. An example of a variable cost is direct materials used to make the product. If sales are small, variable costs are small. As sales increase, variable costs increase proportionately as well. A fixed cost remains unchanged in total for a given time period despite wide changes in the related level of total activity or volume. Examples of fixed costs are costs of operating the plant and costs of drug regulatory affairs to maintain registration of products. In the long run, however, fixed costs can sometimes be adjusted to match the levels needed to support future activity levele ar nraduction volume Commenting on the fival.cat Case-1: Novartis To Trim Or Not To Trim: That Is The Question The issue had come up again and again in various management meetings and company seminars. Novartis had too many products and needed to reduce the product proliferation that had occurred. Thomas Ebeling. Chief Operating Officer, Novatis Pharmaceuticals, wondered what he should do. The merger of Ciba-Geigy and Sandoz to form Novartis on December 20, 1996 had resulted in a significant increase in the pharmaceutical product portfolio of Novartis's Pharma Sector. Combining the pharmaceutical product lines of Ciba- Geigy and Sandoz had given Novartis a leadership position in several therapeutic areas, including immunology and inflammatory diseases, as well as strong positions in central nervous system disorders, cardiovascular diseases, oncology, dermatology, and astma. Novartis now had approximately 250 product brands (such as Sandimmun, Voltaren, Lamisil, and Foradil). The sales volumes of each of the different brands, however, were very different. In 1999, the top 20 brands accounted for 79% of pharmaceutical revenues while the remaining brands yielded 21% of revenues. Novartis Exhibit I presents sales, anticipated sales growth rates, cost and other data for the 50 smallest global base business brands that account for CHF 422 million in sales (or approximately 2.7% of pharmaceutical product sales) in 1998. In addition to the base business brands listed in Novartis Exhibit I, 15 other product brands contributed an additional CHF 2.4 million in revenues. Although these products generated very small revenues, they satisfied some important medical needs. For example, Visken had sales of CHF 114,000 in South Africa but it was unique among betablockers regarding the effect on serotonin la receptors for the onset of antidepressant action. Novartis Exhibit subdivides costs into variable costs and fixed costs. A variable cose changes in total in proportion to changes in the related level of total activity or volume. An example of a variable cost is direct materials used to make the product. If sales are small, variable costs are small. As sales increase, variable costs increase proportionately as well. A fixed cost remains unchanged in total for a given time period despite wide changes in the related level of total activity or volume. Examples of fixed costs are costs of operating the plant and costs of drug regulatory affairs to maintain registration of products. In the long run, however, fixed costs can sometimes be adjusted to match the levels needed to support future activity levele ar nraduction volume Commenting on the fival.cat