Swiss drug maker Novartis reports first quarter profits

Income for core businesses climbed 9 per cent in the quarter to $3.65 billion

Novartis, the world's biggest drugmaker by sales, reported first-quarter profits that beat analysts' estimates as the company begins to benefit from a set of transactions that make it smaller and more profitable.

Core operating income was $3.55 billion, the Swizterland-based company said in a statement today, exceeding the $3.17 billion average of eight estimates.

Income for its businesses climbed 9 per cent in the quarter to $3.65 billion.

On March 2 it completed the biggest step in a three- way asset swap valued at about $30 billion, which chief executive Joe Jimenez said makes the drugmaker instantly more profitable.

The company is now hunting for bolt-on acquisitions of $2 billion to $5 billion each, Mr Jimenez said.

Novartis shares rose as much as 2.5 per cent and were up 1.2 per cent earlier this morning.

The stock has advanced about 37 per cent in the past year, including reinvested dividends, compared with a 44 per cent gain for the 19-member Bloomberg Europe Pharmaceutical Index.

The company needs new products such as LCZ696, a heart- failure drug for which regulatory approval is likely this year, to propel growth as older treatments that make up a fifth of sales lose patent protection.

Novartis reiterated its full-year forecast for core operating profit to grow by a high-single digit percentage and sales to expand at a mid-single digit rate, excluding currency fluctuations.

"Given the excellent start to the year, it is perhaps surprising that the core operating income guidance has not been raised," Alistair Campbell, an analyst at Berenberg noted.

“Perhaps Novartis is holding fire until it has a better grip on the new business structure.”

The company last month wrapped up a deal with GlaxoSmithKline in which it sold its vaccines business to the London-based drugmaker, bought Glaxo’s suite of cancer drugs and formed a joint venture to sell consumer health-care products.

Novartis closed a deal in January to sell its animal health business to Eli Lilly.

The strengthening of the US dollar stripped 10 per cent from sales in continuing operations and 13 per cent from core operating income in the quarter, and the same impact will occur for the year if exchange rates in early April persist.

The company had predicted in January that the effect on core operating income for 2015 would be about 12 per cent.

For continuing operations, the margin on core operating income widened to 30.6 per cent of net sales in the quarter, up 1.7 percentage points in constant currency terms from a year earlier.

Net sales in the pharmaceutical division climbed 1 per cent to $7.1 billion as revenue lost due to competition from generics in the US was offset by a 25 per cent expansion in sales of products such as Gilenya and Afinitor.

The oncology assets bought from Glaxo also contributed $200 million in March.

Alcon sales climbed 5 per cent to $2.6 billion in the first quarter, while revenue in the generics business, Sandoz, climbed 9 per cent to $2.2 billion.

- Bloomberg