Bloomberg News

Novartis Second-Quarter Profit Rises on Alcon, Generic Sales

July 19, 2011

(Updates to add closing stock price in sixth paragraph.)

July 19 (Bloomberg) -- Novartis AG’s second-quarter profit rose 29 percent, boosted by the Alcon eye-care division and higher sales at the Sandoz generic-drug unit.

Earnings excluding some costs climbed to $3.56 billion, or $1.48 a share, from $2.77 billion, or $1.20, a year earlier, the Basel, Switzerland-based company said in a statement today. Analysts had forecast $1.44 a share, the average of 17 estimates compiled by Bloomberg. Sales jumped 27 percent to $14.9 billion, boosted by the decline of the dollar.

Chief Executive Officer Joseph Jimenez is looking to Alcon, which Novartis finished acquiring in April, and new products including the Gilenya multiple-sclerosis pill to boost growth. Novartis, Europe’s second-largest drugmaker by revenue after Roche Holding AG, loses U.S. patent protection on its two best- selling products, Diovan for hypertension and the cancer treatment Gleevec, in 2012 and 2015, respectively.

“Overall it’s a good, solid set of numbers,” Amit Roy, an analyst with Nomura International Plc, said in a phone interview today. “Gilenya is nicely on track.” He recommends buying the shares.

Sales growth this year will be around the double-digit mark excluding currency shifts, Novartis said, repeating its forecast. Novartis doesn’t forecast profit.

Novartis rose 1.56 Swiss francs, or 3.2 percent, to 51.05 francs at the 5:30 p.m. close of Zurich trading, giving the company a market value of 140.2 billion francs ($171.3 billion). The shares have returned 1.8 percent in the past year including reinvested dividends, compared with a 17 percent return in the Bloomberg Europe Pharmaceutical Index.

Currency Effects

Novartis accounts for sales and earnings in dollars. The company’s revenue in other currencies buys more dollars as the dollar declines. Much of its costs are in Swiss francs, however, and the strength of the Swiss currency cut 2 percentage points from profit.

Alcon, which also includes Ciba Vision contact lenses and eye medicines, generated revenue of $2.6 billion, Novartis said. That would have been an increase of 12 percent had Alcon been part of the company a year ago. Novartis has found more than the targeted $300 million of cost savings from the merger, Jimenez said on a conference call with reporters.

Novartis continues to look for smaller acquisitions, he said. Jimenez declined to comment on whether the company was interested in Pfizer Inc.’s animal-health business, which is for sale, or Austrian vaccine maker Intercell AG, in which Novartis has a 15 percent stake.

Paying Down Debt

“Our priority is to pay down debt, so we’re going to be very disciplined,” Jimenez said during a conference call with reporters today.

Revenue from the company’s pharmaceuticals division rose 10 percent to $8.3 billion.

Sales of the Diovan blood-pressure pill fell 3 percent to $1.51 billion after the drug began to lose patent protection in Europe this year. The cancer treatment Gleevec rose 12 percent to $1.2 billion.

Gilenya, the first oral medicine approved in the U.S. for multiple sclerosis, garnered $79 million in second-quarter sales, up from $59 million in the first three months of the year. The company has 13,000 patients on the drug, double the number of three months ago.

Revenue from the Sandoz generic-drug unit advanced 25 percent to $2.5 billion, boosted by increased sales in the U.S. and from new products.

Vaccines and diagnostics sales fell 47 percent to $299 million from a year earlier, when pandemic flu vaccines contributed $200 million. Novartis’s consumer-health unit had sales of $1.19 billion, up 13 percent from a year earlier.

The profit highlighted by Novartis, which it calls “core net income,” doesn’t meet generally accepted accounting principles. Net income under those principles climbed 12 percent to $2.7 billion from $2.42 billion a year earlier, Novartis said.

--Editors: Phil Serafino, Tom Lavell

To contact the reporters on this story: Allison Connolly in Frankfurt at aconnolly4@bloomberg.net; Simeon Bennett in Geneva at sbennett9@bloomberg.net

To contact the editor responsible for this story: Phil Serafino at pserafino@bloomberg.net


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