Novartis Profit Rises 7% on Lack of Generic Diovan

Novartis AG’s first-quarter profit rose 7 percent as a generic challenger to the company’s second-best-selling medicine failed to enter the market.

Earnings excluding some costs increased to $3.25 billion, the Basel, Switzerland-based company said in a statement today. Analysts predicted profit of $3.12 billion, the average of seven estimates compiled by Bloomberg. Chief Financial Officer Jonathan Symonds, 54, is resigning and will be replaced by Harry Kirsch, 48, the finance head of Novartis’s drug unit, the company said.

Novartis, Europe’s biggest drugmaker, benefited from Ranbaxy Laboratories Ltd.’s failure to market a copycat version of the Diovan hypertension drug. Sales growth from new treatments such as the Gilenya multiple sclerosis pill are slated to help replace revenue from the cancer medicine Gleevec and Diovan. The two products are the company’s biggest sellers, with revenue of $9.1 billion last year. They may reap just $5.2 billion in 2015 after losing patent protection, according to estimates compiled by Bloomberg.

“All divisions were strong with the exception of Alcon, which was hampered by sluggish revenues in the surgical business,” Andrew Baum, a London-based analyst at Citigroup, said in a note to clients today. “The surprising departure of the well-respected Novartis CFO Jon Symonds is likely to dominate investor attention.”

Generic Rivals

Novartis also reiterated its forecast for a mid-single-digit percentage decline in profit this year, and repeated that sales will be in line with those of 2012, excluding currency swings. Competition from generic medicines will cut sales by as much as $3.5 billion in 2013, the company said.

The Alcon eye-care division’s sales climbed 1 percent to $2.57 billion.

The company said incoming Chairman Joerg Reinhardt will receive annual compensation of 3.8 million Swiss francs ($4 million) in a mix of cash and stock, with an additional payment of 2.6 million euros ($3.4 million) over the next two years to make up for a loss of income from Bayer AG, his former employer.

His predecessor Daniel Vasella, who was criticized by some investors for the amount of his pay, received 2012 compensation of 13.1 million francs.

Sales increased 2 percent to $14 billion, matching the average estimate.

Novartis fell 0.4 percent to 69 francs in Zurich. The stock has gained 25 percent this year including reinvested dividends, compared with a 20 percent return for the Bloomberg Europe Pharmaceutical Index.

Job Cuts

Yesterday, the U.S. sued the company for alleged health-care fraud, saying Novartis paid kickbacks to pharmacies for switching transplant patients to its drug Myfortic. Novartis “disputes these claims and will defend itself,” Chief Executive Officer Joe Jimenez said on a conference call with reporters.

The company will cut 300 jobs at its struggling plant in Lincoln, Nebraska to focus the site on producing solids and powders after it received mixed reviews in U.S. Food and Drug Administration inspections. The measures will cost $100 million.

Pharmaceutical sales were unchanged at $7.9 billion, as volume growth offset generic competition.

Ranbaxy Failure

Ranbaxy, which had the exclusive right to sell a generic version of Diovan in the U.S. beginning Sept. 21, failed to win regulatory approval to begin marketing the product. There’s still no generic version of the Diovan standalone drug, Jimenez said on a conference call with reporters.

Revenue for Diovan, which lost U.S. patent protection last year, dropped 23 percent to $918 million. Novartis’s Sandoz unit has been marketing a generic of the combination drug Diovan HCT.

Sales of Gleevec, the company’s second-best selling product, rose 1 percent to $1.14 billion. Revenue for Tasigna, the company’s successor drug to Gleevec, increased 36 percent to $284 million.

Sales in the vaccines division rose 9 percent to $327 million. Revenue from the Sandoz generic-drug unit advanced 6 percent to $2.26 billion as it benefited from last-year’s $1.5 billion acquisition of Fougera Pharmaceuticals and sales of biosimilars as well as volume growth. Novartis’ consumer-health unit had revenue of $987 million, an increase of 6 percent.

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