April 23 (Bloomberg) -- Novartis AG, Europe's third-largest drugmaker, said first-quarter profit rose as the company paid less than expected to withdraw its Zelnorm bowel drug and a bigger sales force boosted the heart medicine Diovan.

Net income unexpectedly climbed 11 percent to $2.17 billion, or 92 cents a share, from a restated $1.95 billion, or 83 cents a share, Basel, Switzerland-based Novartis said in an e-mailed statement today. Revenue grew 19 percent, beating the 16 percent gain rival Roche Holding AG reported last week.

Chief Executive Officer Daniel Vasella hired more sales executives to introduce drugs such as Tekturna, the first new blood pressure treatment in over a decade, and Galvus for diabetes, which was delayed. With neither drug on the market, the new staff helped spur older medicines like Diovan instead.

``The numbers speak for themselves, they beat the consensus,'' said Karl-Heinz Scheunemann, an analyst at Bankhaus Metzler in Frankfurt. ``Novartis has a well-rounded portfolio and a pipeline with very good prospects.''

Novartis repeated sales will grow at least 5 percent this year, a forecast scaled back last month after the U.S. Food and Drug Administration asked the company to stop selling Zelnorm, approved in 2002 for irritable bowel syndrome and constipation. A review of 18,000 patients indicated people taking the drug had more heart attacks and strokes. The withdrawal will slice more than $600 million off net sales for the rest of the year, the company said.

Surprise

The cost to pull Zelnorm from the market was $52 million, compared with the more than $300 million some analysts had forecast. Novartis doesn't expect significant additional costs from the withdrawal, spokesman John Gilardi said. The company also had a one-time gain of $107 million resulting from Tekturna's regulatory approval last month.

``This certainly caught me by surprise,'' said Dieter Buchholz, a fund manager who helps oversee $107 billion at AIG Private Bank Ltd. in Zurich and holds Novartis shares. The company was expected to earn $1.82 billion, according to median estimate of 10 analysts surveyed by Bloomberg News.

Growth will slow over the whole year, Novartis said, as the Swiss company faces generic competition in the U.S. on Trileptal and Lamisil, drugs to treat epilepsy and nail fungus. A patent on a key ingredient of Lotrel, a high blood pressure drug, may face challenges, said Holger Geissler, who manages pharmaceutical stocks at DWS Investment GmbH in Frankfurt.

Shares Rise

Novartis shares rose 25 centimes, or 0.4 percent, to 69.8 francs in Zurich. The stock fell 3.1 percent in the first quarter, compared with a 4.5 percent increase for Roche. GlaxoSmithKline Plc, Europe's largest drugmaker, rose 10 percent in the quarter, while the second-biggest, Sanofi-Aventis SA, dropped 6.9 percent. The Bloomberg Europe Pharmaceuticals Index fell 1 percent in the first three months.

In February, U.S. drug regulators delayed Galvus and have asked for more tests on patients with kidney problems, raising concern about when the treatment may go on sale. The company said today it will sit down with Food and Drug Administration officials to discuss their requests.

``This may mean we are not looking at a delay of one to one- and-a-half years, but more like two to two-and-a-half,'' said Geissler, whose holdings include Novartis shares.

Of the company's four units, Sandoz generics had the steepest increase in sales, 19 percent, followed by the prescription drug division, with 17 percent. The consumer health unit, which struggled with problems at Ciba Vision, saw sales climb 9 percent. The branch that makes vaccines and diagnostics had sales of $231 million. It wasn't fully part of the company a year earlier.

Diovan, Gleevec

Sales of Diovan rose 20 percent to $1.2 billion, higher than analysts expected. Revenue for the Gleevec cancer drug climbed 16 percent to $674 million as Bristol-Myers Squibb Co.'s competing treatment Sprycel failed to cut into its market share and more patients took the highest dose of the medicine.

``I am confident of another year of record sales and earnings in 2007,'' Vasella said in the statement today.

The company spent more last quarter to prepare for the introduction of Tekturna and Exforge, a combination of older medicines that received clearance in December. Both drugs may generate annual revenue of more than $1 billion, Novartis says.

``They had one drug approved and one not approved,'' in the quarter, said Romain Pasche, who manages about $800 million in drugs stocks at Vontobel Asset Management and holds Novartis shares. ``That could have been worse but it could also have been better, and the share price reflects this.''

Gerber Sale

Earlier this month, Novartis agreed to sell the Gerber baby- food brand to Nestle SA for $5.5 billion in cash. Proceeds from this sale and that of the medical nutrition unit, $8 billion in total, will fund share buybacks and smaller acquisitions, Novartis's Raymund Breu said today.

Last week, Novartis agreed to pay as much as $890 million to U.K. biotechnology company Antisoma Plc for two experimental cancer drugs.

Roche last week said first-quarter sales rose 16 percent, driven by demand for its Avastin tumor-fighting medicine and Tamiflu to ward off avian influenza. Roche, Europe's fourth- largest drugmaker, doesn't release quarterly earnings.

To contact the reporter on this story: Eva von Schaper in Munich at evonschaper@bloomberg.net.

Last Updated: April 23, 2007 11:53 EDT