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Sales growth and acquisitions boost Novartis profits

Pharma division is the lynchpin as Swiss firm keeps in line with expectations

Falling marketing and sales costs have helped Novartis to a 32 per cent rise in first-quarter net profits to $1.96bn, as the Swiss firm forecast ìrecord levels of operating and net incomeî in 2006.

The impressive rise in profits was also boosted by a one-time gain of $129m from the sale of Novartis' Nutrition & Sante consumer health unit to ABN Amro Capital France.

Revenue at the pharmaceuticals division, which accounts for almost three-quarter of operating profit, rose 9 per cent to $5.052bn from $4.79bn in the same period a year earlier with operating margin increasing to 32 per cent on the back of strong sales of its best-selling hypertension treatment, Diovan.

Group net sales rose 17 per cent in local currencies to $8.301bn.

One slight disappointment for Novartis came in the form of lower-than-expected sales growth at its generics division, Sandoz. Lombard Odier Darier Hentsch analyst Karl Heinz Koch said generic sales were about $100m below expectations.

However, Sandoz's operating profits more than doubled to $238m in the period as margins improved.

While lower marketing and sales costs fell in the first quarter, Novartis said these expenses were set to rise in 2006 as hypertension drug Rasilez and oral diabetes treatment Galvus came closer to launch.

Analysts were overall impressed with the Novartis figures, saying that they were in line with expectations and that the company's pipeline was promising. With many compounds in late stage development or awaiting regulatory approval, investors are keeping an eye on Novartis' update on expected submissions.

The firm said it still expects Galvus and Rasilez to be filed for European marketing approval by the end of this year. Both drugs were filed with the US Food and Drug Administration (FDA) during the first quarter.

Last year Novartis spent $8bn on generic drug manufacturers Hexal of Germany and New York-based Eon Labs to beef up Sandoz's exposure in the European and US generics markets.

Last week shareholders at US vaccine firm Chiron approved the takeover of the remaining stake that Novartis didn't already own, after the Swiss firm tabled an improved offer of $48 a share, which valued Chiron at $5.4bn.

30th September 2008

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