October 27, 2015 / 6:40 AM / 3 years ago

UPDATE 3-Novartis hit by $390 mln settlement in U.S. kickbacks case

* Q3 core net income down 2 pct to $3.06 bln vs f’cast $3.13

* Sales down 6 pct to $12.27 bln vs f’cast $12.62 bln

* Alcon continues slump, recovery plan to be unveiled in Jan

* Shares down 1.8 percent (Adds quotes from CEO, additional information on lawsuits)

By John Miller

ZURICH, Oct 27 (Reuters) - Novartis agreed in principle to pay $390 million to settle U.S. allegations that it used kickbacks to speciality pharmacies to push sales of some drugs, the Swiss company said on Tuesday, hitting third-quarter earnings.

The U.S. Department of Justice had sued Novartis in federal court, originally seeking up to $3.35 billion on grounds the world’s biggest seller of prescription drugs sought illegally to boost sales of drugs covered by the U.S.-government backed Medicare and Medicaid programmes.

The $390 million provision for a settlement, still pending final agreement by U.S. authorities, pushed third-quarter net income down 42 percent to $1.8 billion.

Novartis’s underlying results also missed analyst forecasts, as weakness at its eyecare business Alcon and a strong dollar offset the benefits of an enlarged cancer drug portfolio acquired from GlaxoSmithKline.

Its shares, down 3.7 percent this year, fell 1.8 percent to 88.90 Swiss francs by 1142 GMT.

Chief Executive Joe Jimenez told reporters Novartis had made the disputed payments to ensure patients took their drugs, including treatments to prevent rejection of transplanted organs, but U.S. government attorneys disagreed.

“It’s something we just believe we want to put behind us,” Jimenez said. Novartis said it neither admitted nor denied liability as part of the settlement.

The lawsuit had accused Novartis of paying rebates to induce speciality pharmacies to recommend iron-reducing Exjade and immunosuppressant Myfortic. The case had been scheduled to go to trial on Monday.

Novartis had to pay $422 million in 2010 to settle a U.S. kickback probe.

A separate U.S. government claim accusing it of paying multimillion-dollar kickbacks, including a $9,750 dinner for three at a Japanese restaurant, is scheduled to go to trial in 2016. Jimenez declined comment on any settlement talks.

INTENSE COMPETITION

The maker of painkiller Voltaren said core net income fell 2 percent to $3.06 billion, compared with an average analyst estimate of $3.13 billion in a Reuters poll. The figure rose 13 percent at constant currencies.

Sales fell 6 percent to $12.27 billion, compared with the poll average of $12.62 billion. The number was up 6 percent at constant currencies.

Novartis’s Sandoz generics unit posted strong sales of $2.3 billion, led by a 28 percent increase in sales of biopharmaceuticals including its Glatopa version of Copaxone to treat multiple sclerosis.

But Alcon continued its slump, driven by declining surgical equipment sales and generics competition. Jimenez said an Alcon recovery plan would be unveiled in January.

“It’s a good business but it’s suffering from some intense competition, as well as we have not been as innovative on Alcon as we should be,” he told Reuters. “The plan that we are going to unveil in January ... will play heavily on the innovation front.”

New drugs including heart medicine Entresto, forecast to generate $4.7 billion in sales in 2020 according to Thomson Reuters Cortellis, have not yet contributed significantly to results. “It’s very early,” Jimenez said.

Novartis kept full-year guidance for annual sales to grow by around 5 percent with core operating income growing at high single digits, stripping out currency effects. “We got whacked by currencies in this quarter,” Jimenez said. “I still feel very bullish on our core business performance.” ($1 = 0.9823 Swiss francs) (Editing by Michael Shields and David Holmes)

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