(Reuters) - Relations have turned icy between the CEOs of Roche and Novartis as Switzerland's top two drug executives defend their very different strategies to making money in a tough healthcare market.

The climate became frostier last week when Roche's Severin Schwan announced a cost-saving program on the same day that Novartis CEO Joe Jimenez presented his diversification strategy at the group's long-awaited investor day in London.

"It was noticeable that Jimenez was irritated about the timing of the Roche cost-cutting announcement," said Vontobel analyst Andrew Weiss, who attended the London meeting.

The differences go deeper than a matter of timing. Schwan, an Austrian who collected his doctorate in law from the University of Innsbruck, has been dismissive of the sort of approach taken by Novartis, based on expanding into broader product categories.

"A lot of people call it diversification," Schwan was quoted as saying in an interview with the Financial Times. "I call it giving up."

For investors too the issues are potentially serious as governments across the world look to slash drug spending, regulatory standards toughen and looming patent expiries create a tough environment for the drug sector.

This has prompted pharmaceutical groups, including Roche and Novartis, to examine their strategies, the results of which could play a big part in determining which stocks outperform and which lag behind in coming months and years.

COST CUTS

Roche is cutting about 6 percent of its workforce over the next two years, aiming to reduce annual costs by 2.4 billion francs from 2012 onwards, while Novartis's Jimenez, a former H.J. Heinz Co executive who took over in February, has mapped out a broad-based diversification plan.

The latter includes over-the-counter remedies, eye care, vaccines and cheap generic copies of prescription drugs, as well as branded pharmaceuticals.

Investors are also watching the clash of the Basel-based companies for any impact on Novartis' 33 percent stake in Roche's voting shares, a holding which previous CEO Daniel Vasella grabbed nine years ago.

Novartis snapped up the position after a vitamin price-fixing scandal hit Roche hard. Many believed at the time that Novartis may try to buy its cross-town rival, but a recovery in Roche stock meant it was soon out of its reach.

Novartis spokesman Eric Althoff said the recent posturing was not likely to affect the Roche position. And Novartis Chief Financial Officer Jon Symonds said last week the Roche stake was strategic and the group did not have any plans to sell.

Roche stock has lost over a fifth of its value so far this year after a series of setbacks for its top-selling Avastin drug, used to fight a range of cancers, and disappointments for once-promising new drugs in its pipeline.

Novartis by contrast is down only around 3 percent.

Novartis's top management was not amused by Schwan's interview comments and some industry analysts found them surprising given the problems piling up in his own business -- including concerns about whether its high cancer drug prices are sustainable.

"Roche has divested non-core assets in the past to focus on pharmaceuticals and diagnostics. There was a time when this was the right thing to do and Roche was shining in a downbeat sector thanks to its cancer drugs," Helvea analyst Karl-Heinz Koch said.

"But that is changing now and Roche will need to think hard how to position the company for the future."

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