* Second-quarter sales up 2 pct but miss analysts'
* Weak performance at vaccines, animal health
* Core operating income up 3 pct at $3.8 bln, slightly below
* Confirms full-year guidance, shares down 0.9 pct
(Recasts lead, adds details, analyst, shares)
By Caroline Copley
ZURICH, July 17 Swiss drugmaker Novartis
posted a quarterly rise in sales that missed
expectations and said it would focus on eking out gradual cost
savings to boost margins as it prepares a radical business
Despite the sales miss, the Basel-based company confirmed
its full-year guidance for a rise in sales and profit, expecting
revenue from new products to offset generic competition to its
blood pressure pill Diovan.
Novartis unveiled a series of deals worth more than $25
billion in April to get out of underperforming businesses such
as vaccines and animal health operations while adding
higher-margin cancer drugs from GlaxoSmithKline.
Weak performance from the outgoing vaccines and animal
health businesses weighed on second-quarter group sales that
were up 2 percent at $14.64 billion, slightly short of the
average forecast of $14.72 billion in a Reuters poll.
Sales at the vaccines unit were down 13 percent, hit by the
timing of some bulk pediatric shipments, while animal health
faced a tough year-on-year comparison after last year's relaunch
of flea control product Sentinel.
Analysts at Sanford C. Bernstein described the results as
"weak" but noted that the company's full-year guidance remained
intact and has retained its "outperform" rating on the stock.
Shares in Novartis, which have advanced 14 percent this year
as investors cheered its overhaul, were trading down 0.9 percent
at 80.40 francs by 0803 GMT.
NO 'BIG BANG' SAVINGS
Under the new structure, Novartis will concentrate on three
"powerhouse divisions" - pharmaceuticals, its Alcon eyecare unit
and generics division Sandoz - hoping a focus on a smaller
number of leading businesses will help to drive growth as
healthcare budgets come under pressure.
It is also consolidating some back-office functions into a
single shared-service organisation. These operations are
currently spread across all divisions and account for more than
$6 billion in expenses.
Chief Executive Joe Jimenez said the restructuring gives
Novartis "a lot of runway" to reduce costs further, albeit
"You shouldn't look for a 'Big Bang' of Novartis Business
Services; for example, us coming out and saying we're resetting
our cost base," Jimenez said. "This is going to be a process
over time that allows us to continually lower our costs and
continually drive margin growth."
Novartis confirmed its full-year guidance for sales to grow
in the low-to-mid-single digit percentage range this year as it
braces for generic competition to lop $2.7 billion off its top
Quality control issues at manufacturing sites for India's
Ranbaxy Laboratories - which holds the rights to
launch the first copycat version of Diovan - spared Novartis
from a cheaper rival to its once best-selling blood pressure
pill for 20 months.
But Ranbaxy was granted approval to launch a copycat version
at the end of June, meaning Novartis will now face the full
force of competition.
Novartis refined its guidance for core operating income,
saying it expected growth at a mid-to-high single-digit rate
compared with a previous outlook for it to grow ahead of sales.
Core second-quarter operating income of $3.8 billion fell
slightly shy of the $3.83 billion analyst consensus.
(Editing by David Goodman)