* Q3 sales $14.34 bln vs poll average $14.32 bln
* Core EPS $1.26, misses $1.29 forecast in Reuters poll
* Expects FY sales to grow at low to mid-single digits
* Sees FY core earnings in line or better than previous year
(Adds details on R&D spending, China, strategic review)
By Caroline Copley
ZURICH, Oct 22 Swiss drugmaker Novartis
raised its full-year sales and profit forecasts for a
second quarter in a row on Tuesday, as it benefited from delays
to a cheap, copycat competitor to one of its best-selling drugs,
blood pressure pill Diovan.
Novartis lost its patent rights on Diovan in the United
States last year and already faces some generic competition. But
it has been granted a partial reprieve as U.S. regulators have
not yet approved a generic version of one of the main forms the
treatment from India's Ranbaxy Laboratories.
Basel-based Novartis expects full-year sales to grow by a
low to mid single-digit percentage in constant currencies, and
core earnings to be in line or better than the previous year.
It had previously guided for a low single digit percentage
decline in core earnings, and low single digit sales growth.
However, the company cautioned the delay in a generic
competitor to Diovan would push the hit from that into 2014.
Analysts at Berenberg said Novartis had reported a good set
of numbers but noted the upgrade was not due to fundamental
outperformance in its underlying business and would be viewed as
Shares in Novartis - which trade at 13.6 times forecast
earnings, a discount to cross-town rival Roche's 15.4 times -
were up 1 percent to 68.55 francs at 0925 GMT compared with a
0.3 percent firmer European drugs sector.
Novartis has used the reprieve from full competition to
Diovan to funnel more money into research and development.
Chief Executive Joe Jimenez told reporters that R&D
spending, at around 22 percent of sales in the third quarter,
was at the higher end of where the company would like it to be.
He said the firm was scrutinising its pipeline to prioritise
the most promising molecules and would consider partnership or
licensing deals for some lower priority compounds.
New Chairman Joerg Reinhardt launched a strategic review of
some of Novartis' business units in August, and Jimenez said the
company was still considering options for its divisions that
lack global scale and critical mass.
Citi analyst Andrew Baum suggested the animal health unit
could be on the block, given the announcement that George Gunn,
who heads the unit, will hand over his separate corporate
responsibility role to Juergen Brokatzky-Geiger.
Baum estimates the division, which has annual sales of
around $1.3 billion, could have an enterprise value (equity plus
debt) of roughly $4 billion.
Novartis' net sales rose 4 percent in the third quarter to
$14.34 billion, in line with the average analyst forecast for
$14.32 billion in a Reuters poll. Core earnings per share fell 4
percent to $1.26, missing the $1.29 mean estimate.
Adverse foreign exchange rates shaved 6 percentage points
off third quarter core operating income, with the company hit in
particular by a sharp slide in emerging market currencies and a
weaker Japanese yen.
The group is pinning its hopes on emerging markets and sales
in China grew 18 percent in the three months to the end of
September, at a slower pace than the 25 percent seen in the
A crackdown on bribery is expected to hit promotional sales
at many Western drugmakers in China, with GlaxoSmithKline
- at the centre of the bribery allegations - expected to
feel the biggest impact.
Jimenez said market growth for the industry in China was
weaker as hospitals limit access to sales reps, but added he did
not expect the slowdown to be permanent.
Last week, Roche said its focus on speciality cancer drugs,
which are generally paid for privately, had helped shield it
from the slowdown.
(Editing by David Cowell and Mark Potter)