Novartis driven by drugs

August 16, 2001 Posted: 1358 GMT

LONDON (CNN) -- Swiss healthcare group Novartis said first-half profit rose 10 percent on strong demand for its hypertension, osteoporosis and asthma drugs

But Chief Financial Officer Raymund Breu acknowledged it would be harder for the pharmaceutical company to meet its sales growth targets following regulatory hitches for two drugs Novartis had hoped to launch this year.

"To achieve double-digit growth in pharmaceuticals next year or the year after will be more difficult than we had originally assumed but we are saying

it is not wholly out of reach," Breu told Reuters.

"We are confident that we still can grow in line with the market," he added.

Novartis's Zelmac drug for treating irritable bowel syndrome and Xolair

for asthma have both had problems securing marketing approval in the U.S. Before these setbacks, the company had said it expected drug sales growth

to outpace the market starting next year.

Novartis said first-half net profit climbed to 3.73 billion Swiss francs ($2.1 billion), or 1.44 francs a share, from 3.4 billion francs, or 1.3 francs a share, in the first six month of 2000.

Novartis's flagship drugs business posted a 13 percent increase in sales to 9.7 billion francs. Sales of its antihypertensive drug Diovan rose 53 percent to 826 million francs, the company's second-biggest seller.

Quicker-than-expected profit growth

The company's profit beat analysts' expectations. Chief Executive Daniel Vasella has raised spending on marketing and distribution, at the expense of a lower operating margin - the percentage difference between costs and sales.

The operating margin declined to 22.5 percent compared with 23.4 percent for the same period last year. Over the first six months to June 30, Novartis recruited 1,400 people to its Pharmaceutical units sales force.

"Our increased level of investment in marketing and sales, with the priority on key growth drivers, resulted in a sales growth of 21 percent in Pharmaceuticals in the U.S.," Vasella said.

"I am confident that our pharmaceutical business will post double-digit sales growth in the second half of the year," he added.

That growth is expected to be driven by new product launches, rising sales of existing drugs, new uses for some current products. Operating margins are expected to continue to come under pressure as the company strives to increase its market share, Novartis said.

Of Novartis's current cabinet of drugs, sales of Aredia, a treatment for cancer complications, rose 28 percent to about 670 million francs, but revenue from the transplant drug Sandimmun, its best selling product, dropped 8 percent to 930 million.

"Barring any unforeseen disturbances, full-year group operating income and net income are expected to exceed last year's level on an ongoing basis," the company said.

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