Novartis Profit Rises on Pandemic Flu Vaccine Sales

Novartis AG (NOVN)’s first-quarter profit climbed 49 percent, boosted by sales of pandemic flu shots and new medicines to treat blindness and brittle bones.

Net income rose to $2.93 billion from $1.96 billion a year earlier, the Basel, Switzerland-based company said today. Analysts forecast profit of $2.68 billion, according to the average of 11 estimates compiled by Bloomberg. Sales increased 25 percent to $12.1 billion.

Pandemic flu vaccines added $1.1 billion in sales as countries around the world bought shots to protect citizens against infection. Demand for recently introduced products such as the Lucentis eye medicine and the Reclast osteoporosis drug also helped revenue. Novartis expects new products to fuel growth as patents on the company’s best-selling treatments, the Diovan blood-pressure pill and the Gleevec cancer medicine, start to expire in the U.S. in 2012.

“It’s a solid start to the year, flattered by higher-than-expected sales of H1N1 pandemic flu vaccines,” said Gemma Game, a fund manager at AXA Framlington in London who helps manage more than $430 million in assets, including Novartis shares. “There are encouraging signs from the pharmaceutical division that new products are driving growth.”

Forecast Maintained

Novartis reiterated its forecast for 2010, saying sales will probably increase at a mid-single-digit percentage rate in local currencies. Eli Lilly & Co. yesterday said first-quarter earnings were trimmed by 12 cents a share because of costs for Barack Obama’s health-care law, signed last month.

“Another reassuring factor within the guidance was the lack of management commentary related to U.S. health-care reform,” Jeffrey Holford, an analyst at Jefferies International Ltd. in London, said in a note to investors today.

The shares rose 30 centimes, or 0.5 percent, to 56.7 Swiss francs in Zurich trading. The stock has gained less than 1 percent this year.

Novartis overhauled its pharmaceutical business in the U.S., creating three units focusing on multiple sclerosis, respiratory diseases and neuroscience. A primary-care business has been integrated into other units, leading to a loss of 383 jobs, Novartis said. The streamlining will result in a charge of $24 million in the second quarter, with yearly savings of $56 million expected starting in 2011, the company said. Andre Wyss will also take over as head of Novartis’s U.S. operations, replacing Ludwig Hantson, who has left to become the head of Baxter International Inc.’s international business.

The results are the first under new Chief Executive Officer Joe Jimenez, who replaced Daniel Vasella Feb. 1 after serving as head of the company’s pharmaceutical division. Vasella, who had been CEO for 14 years, remains chairman.

Branded Drug Sales

Sales of branded medicines gained 13 percent to $7.29 billion. Diovan generated $1.44 billion in revenue, a gain of 3 percent and less than analyst estimates of $1.48 billion.

Teva Pharmaceutical Industries Ltd. on April 7 won U.S. regulatory approval for its generic version of Merck & Co.’s anti-hypertension drug Cozaar. The impact of this generic medicine on Diovan is “one of the key questions for Novartis,” AXA’s Game said.

Sales of Gleevec, used to treat the blood cancer chronic myeloid leukemia, rose 15 percent to $1.03 billion, beating estimates of $1.02 billion. The Exforge high blood-pressure drug generated $204 million in sales.

Revenue from Reclast, which won U.S. approval in 2007, rose 45 percent to $123 million. Revenue from new products accounted for about 20 percent of sales at Novartis’s drug unit during the first quarter, up from 14 percent a year earlier.

Diovan Expiry

“With growth coming from other products, they’ll be in a position to weather the Diovan expiry,” said Birgit Kulhoff, an analyst at Rahn & Bodmer in Zurich.

Total sales of vaccines and diagnostics increased more than five-fold to $1.36 billion. The company said it doesn’t expect significant revenue from the pandemic flu vaccine over the course of the year.

Revenue from the Sandoz generic-drug unit advanced 16 percent to $2 billion. The Swiss company beat its swine flu vaccine sales estimate of $700 million by $400 million.

Novartis’s consumer-health unit, which includes the Ciba Vision contact-lens business, had revenue of $1.48 billion, a gain of 13 percent from a year earlier.

Alcon

The company said in January it would exercise an option to buy Nestle SA’s 52 percent stake in Alcon Inc., the world’s largest eye-care company, for $28.1 billion. The planned purchase is part of Novartis’s strategy to diversify from medicines. The company owns 25 percent of Alcon.

Novartis has also offered to buy each remaining Alcon share held by the public. A committee of independent Alcon directors said in January that Novartis’s offer is “grossly inadequate” and the Swiss drugmaker is using “coercive tactics” to force the deal on shareholders.

“Nothing has changed,” Jimenez said on a conference call. “Our offer to the Alcon shareholders of 2.8 Novartis shares for every Alcon share represents a premium. We’re holding to that proposal.”

Novartis expects to complete the acquisition of Nestle (NESN)’s stake in the second half of the year, he said.

To contact the reporter on this story: Dermot Doherty in Geneva at ddoherty9@bloomberg.net

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

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