Novartis Boosted by Drug Launches

ZURICH--Swiss drug maker Novartis AG (NOVN.VX) Wednesday posted a rise in first-quarter net profit, as new product launches and strength in emerging markets helped offset declining sales of the blockbuster heart drug Diovan.

In an unexpected move, Novartis also said Chief Finance Officer Jon Symonds is resigning and will be replaced by Harry Kirsch, head of finance at the company's flagship pharmaceutical division. The departure marks the second major change in the management structure this year, after the retirement of Daniel Vasella, the company's chairman.

Basel-based Novartis said recently launched drugs, including cancer treatment Afinitor and multiple sclerosis pill Gilenya, picked up speed during the quarter, generating $4.2 billion in revenue that contributed almost a third of total sales. The strong starts helped to compensate for a steep decline in sales of Diovan, the company's No. 2 drug by revenue, which lost patent protection in the U.S. in September.

Growth in China and Russia also helped to bolster the company's performance, offsetting slowdowns in Canada and Latin America.

Chief Executive Joe Jimenez called the quarter "solid" and said the company's innovation had continued to pay off.

The first-quarter results suggest Novartis is making progress in its efforts to return to growth as it looks for drugs that can replace the revenue lost by older drugs that are losing patent protection. New drugs, such as Afinitor and Gilenya, take time to catch on with doctors, even as revenue from drugs losing patent protection drops off quickly.

In the three months ended March 31, net profit rose 6.7% to $2.42 billion from a confirmed $2.25 billion a year earlier. The result was below the $2.49 billion forecast in a survey of eight analysts conducted by The Wall Street Journal.

Analysts said the results show Novartis can weather patent expirations and may be on the brink of a new growth phase. David Kaegi, an analyst with Sarasin in Zurich, said the better-than-expected results were driven in part by improved margins. Mr. Kaegi has a buy rating on the stock.

Net sales rose 2.0% to $14.02 billion, compared with expectations of $14.04 billion.

Novartis estimated the impact of patent losses at about $500 million in the quarter, and said competition from cheaper rival drugs could hurt annual sales this year by as much as $3.5 billion.

Sales of Diovan, a hypertension treatment that has powered Novartis's revenue for years, dropped 23% to $918 million. The drug will likely lose more revenue later this year when a delayed copy of the drug made by Ranbaxy Laboratories Ltd. is expected to be launched.

Novartis said it is still dealing with manufacturing issues at a facility in Lincoln, Neb., that have crimped its ability to get products to market. The company will now cut around 300 jobs at the plant.

Also Wednesday, Mr. Jimenez said Novartis's U.S. unit, Novartis Pharmaceuticals Corp., is disputing allegations made by federal prosecutors who filed a civil-fraud lawsuit alleging that the company paid kickbacks to get pharmacies to switch kidney-transplant patients from generic drugs to the company's brand-name product.

"The company will defend itself in the litigation," Mr. Jimenez said in a conference call with reporters.

Novartis shares were trading 0.72% lower at 68.75 Swiss francs ($73.23) around midday in Zurich.

Write to Marta Falconi at [e-mail]

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