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Swiss drugmaker Novartis raised its full-year forecast for drug sales on Thursday, betting on income from cancer and heart medicines after second-quarter net profit met expectations.
Novartis, which faces loss of exclusivity on its top-selling blood pressure drug Diovan in 2012, now sees sales in local currencies at its drugs unit growing at a high single-digit rate. It had previous forecast growth in the mid-to-high single digits.
"A pleasant surprise in pharmaceuticals, where growth and profitability has been better than expected," said Helvea analyst Karl-Heinz Koch.
The strong results follow forecast-beating numbers from diversified health care group Johnson & Johnson [JNJ
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The pharma unit is Novartis' largest business, where sales rose 3 percent to $7.1 billion, some two thirds of the group total.
Novartis [NVS
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] confirmed previous group guidance for sales growth in 2009 at a mid single-digit rate.
The pharmaceuticals sector initially coped better than many others with recession but has recently begun to underperform, hit by prospects of more competition, problems getting new drugs to market and cheaper medicines from generics manufacturers.
The prospect of U.S. health reform — and hence cheaper medicines — has also pressured the sector and Novartis said it expected the impact on its business to be "moderate but manageable."
Novartis shares have underperformed both the DJ Stoxx European pharma index and the Swiss blue chip index this year, but rose 3.1 percent to 40.06 Swiss francs on Thursday.
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The Basel-based firm now trades at about 9 times forecast 2010 earnings, a premium to some of Europe's other big drugmakers like AstraZeneca [AZN-LN Loading... ()] and Sanofi-Aventis but a discount to local rival Roche Holding, which has less exposure to generic competition.
Currency Losses
Novartis' second-quarter net profit fell 10 percent to $2.0 billion due to the stronger dollar and higher financing costs and the group repeated an earlier warning that currency-related losses could hit full year profit.
Because Novartis reports in dollars it has suffered from the weakness of the Swiss franc against the greenback compared with the same period last year.
Profit was also hit by higher financing costs — partly due to its purchase of a stake in eye care company Alcon from Nestle — after it issued a 1.5 billion euro ($2.1 billion) bond in the second quarter.
Group sales fell 2 percent — but rose 8 percent in local currencies — to $10.5 billion, helped by new products like cancer medicine Afinitor and blood pressure drugs Exforge and Tekturna.
Novartis had been expected to post a net profit of $2.0 billion and sales of $10.3 billion, according to a Reuters poll.
The positive drugs results outweighed the recession-hit consumer health unit, and the Sandoz generics business was hurt by lower U.S. prices and lost sales from a plant which U.S. regulators will inspect in the third quarter, analysts said.
"Pharmaceuticals, Novartis' main value driver, beat our and consensus expectations in terms for revenues, operating profit and profitability," said Vontobel's Andrew Weiss.
Data is a real-time snapshot *Data is delayed at least 15 minutes