Novartis AG’s (NOVN) third-quarter profit dropped 8 percent on competition from generic drugs and the strength of the dollar against most major currencies. Earnings met analyst estimates. Earnings excluding some costs fell to $3.26 billion, or $1.34 a share, from $3.54 billion, or $1.45, a year ago, the Basel, Switzerland-based company said in a statement today. Analysts predicted profit of $1.34 a share, the average of 15 estimates compiled by Bloomberg. Sales of consumer-health products sank for a fourth straight quarter after a factory in the U.S. was shut down for manufacturing woes. New drugs such as the Afinitor cancer treatment are helping to make up for declining sales of Diovan, for blood pressure, and Gleevec, a cancer medicine. The two drugs, the company’s biggest-selling products, generated revenue of $10 billion last year and may reap just $5.4 billion by 2015 after losing patent protection. “Overall a solid set of numbers and the excellent profitability performance in pharma is offsetting growing difficulties elsewhere, allowing Novartis to keep guidance intact,� Alistair Campbell, an analyst with Berenberg Bank, said in an e-mailed message today. Sales fell 7 percent to $13.8 billion, missing the average analyst forecast of $14.2 billion. The company gets about a third of revenue from Europe, yet reports earnings in dollars. Stock Drop The dollar index, which reflects the value of the dollar against major world currencies, was on average 8.6 percent higher in the third quarter than a year earlier. Novartis fell 0.6 percent to 56.85 Swiss francs at 9:15 a.m. in Zurich. The shares had returned 11 percent this year including reinvested dividends, compared with a 15 percent return for the Bloomberg Pharmaceuticals Index (BEPHARM) of 19 companies. In January the company temporarily closed a factory in Lincoln, Nebraska, because of quality concerns. Novartis suffered a another setback yesterday when Italy and Switzerland halted sales of its flu vaccines after the company informed Italian authorities of a buildup of particles in the shots. “Manufacturing problems remain an overhang with the Lincoln facility still some way from coming back on line,� Campbell, the Berenberg analyst, said. “We can now add a vaccines facility to the list of areas with manufacturing problems.� ‘Difficult Process’ Chief Executive Officer Joe Jimenez said the company can’t say when the vaccines will be sold again in Italy and Switzerland. “Manufacturing vaccines is a difficult process and there are deviations,� Jimenez said in a call with journalists today. “That is part of a normal process of making vaccines. We are confident that efficacy and safety is assured.� Novartis is using outside companies to produce three products made in Lincoln -- the athlete’s foot gel Lamisil, Excedrin headache pill and the Triaminic children’s pain and flu medicine -- and plans to resume sales in October. Jimenez said he can’t say when Lincoln will be running again. “What I would like to do is stop making projections because we have proven that we’re not able to accurately project,� he said. Consumer-health sales plunged 22 percent to $938 million. Drug Sales Revenue in the pharmaceutical division fell 5 percent to $7.8 billion. Diovan sales dropped 32 percent to $969 million after it started facing competition from cheaper copycat pills in Europe and the U.S. Sales of Gilenya were $316 million, up 107 percent. The drug was approved in the U.S. in 2010 as the first oral treatment for multiple sclerosis, and cleared for sale in Europe in March 2011. Revenue from the eye treatment Lucentis advanced 15 percent to $593 million. Afinitor, approved to treat cancers of the kidney and pancreas, climbed 75 percent to $206 million. Vaccines sales were $582 million, down 11 percent because of lower sales of flu shots in the northern hemisphere and shipment delays from one of the manufacturing sites. Sales in the generic drug unit Sandoz fell 13 percent to $2 billion on greater competition for its version of Sanofi’s Lovenox. The Alcon eye-care division had a sales drop of 1 percent, to $2.5 billion. Novartis reaffirmed its forecast for 2012. Net sales on a constant-currency basis are expected to be in line with 2011, and core operating income margin in constant currencies is expected to be slightly below 2011. A negative impact from the dollar would be a bit less than expected of 3 percent to 4 percent on sales and 2 percent to 3 percent on operating income for 2012. To contact the reporter on this story: Eva von Schaper in Munich at evonschaper@bloomberg.net To contact the editor responsible for this story: Phil Serafino at pserafino@bloomberg.net

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