Novartis Cuts US Jobs as Third-Quarter Profit Falls 12%

Swiss drugmaker Novartis's third-quarter net profit missed forecasts, dropping by 12 percent to $1.57 billion, weighed down by the launch of rival generic versions of its drugs and a one-off charge.

But its shares opened 0.5 percent higher, as markets reacted positively to 1,260 job cuts in the United States and analysts said the underlying business still looked sound.

"The weaker third-quarter results mark the bottoming out for Novartis, in our opinion," said Philipp Buchli, a fund manager at Q Investments in Zurich.

Basel-based Novartis confirmed its full-year outlook for mid single-digit percentage growth in group net sales and a low single-digit percentage growth in drug sales.

"Underlying, it is an okay rather than a special performance," said Paul Diggle, analyst at Nomura Code Securities in London, who rates Novartis "neutral."

"The States was always going to be bad. People won't be surprised but they will be pleased to see the trimming in the US operation," he said.

Novartis said it had increased its provisions for worldwide environmental liabilities -- mostly linked to previously owned businesses -- by $590 million. Liabilities include 200 million Swiss francs for landfills in the Basel region.

Operating income was hard hit by the loss of sales of bowel drug Zelnorm, which was withdrawn from sale in the United States, and launches of generic versions of three of its medicines, Famvir, Lotrel and Lamisil.

The head of the company's pharmaceuticals unit, Thomas Ebeling, will now lead the consumer health division. Joe Jimenez will take over the drugs business, effective immediately.

Novartis also said it would axe about 240 positions at its US headquarters and reduce the US sales force by approximately 510 Novartis and 510 third-party representatives.

Savings would be some $230 million in 2008.

Drug Setbacks

It has been a tough 2007 so far for Novartis, which has cut its guidance twice because of setbacks to key drugs, and its shares have fallen 11 percent since the start of the year.

But its valuation at 14.7 times forecast 2008 earnings -- just ahead of the DJ Stoxx European pharmaceuticals index -- may undervalue its prospects due to a good stable of new products and growth potential in generics and vaccines, analysts say.

Longer term, Novartis still boasts a broad pipeline of experimental drugs but the true commercial potential of these products may not become clear until clinical trials later in the decade, according to industry analysts.

It needs the new batch of drugs to succeed to make up for the looming loss of sales from older medicines, including the top-selling blood pressure pill Diovan, which goes off patent in 2012.

Novartis had been expected to post a net profit from continuing operations of $1.75 billion in the quarter, according to the average forecast in a Reuters poll of 11 analysts.

Third-quarter sales rose 9 percent to $9.61 billion, beating an average forecast of $9.36 billion.

Drugs sales rose 2 percent to $5.89 billion, in line with forecasts.