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Novartis Profit Up Despite Deal Costs

July 18, 2006|From Bloomberg News

Swiss drug maker Novartis said Monday that second-quarter profit climbed 4.1% as sales of its heart pill Diovan and cancer medicine Gleevec offset costs related to the acquisition of Chiron Corp.

Net income rose to $1.71 billion, or 72 cents a share, from $1.64 billion, or 70 cents, a year earlier, the Basel-based company said. Revenue rose 18% to $9.18 billion, but the Chiron purchase resulted in costs of $209 million for the quarter.

Chief Executive Daniel Vasella said earnings and revenue would probably reach a record this year as the company prepared to introduce four medicines with sales potential of more than $1 billion each. Vasella, 52, is building up Novartis' drug portfolio and buying companies such as Chiron and Germany's Hexal to bolster growth.

U.S.-traded shares of Novartis rose 6 cents to $54.49.

Novartis acquired Chiron for $5.33 billion in April after twice raising a bid it first made to the company's shareholders in October 2005. Operating profit would have grown 23% without the Chiron costs last quarter, Novartis said. Instead, it rose 11%.

"I was surprised that the charges related to the Chiron acquisition are that high," said Luis Correia, who helps manage about $550 million in health stocks at Clariden Bank in Zurich, Switzerland. "The hope is though that once those charges are out of the way, Novartis will be able to turn Chiron around."

Novartis said the acquisition would reduce net income by $400 million to $450 million this year. Analysts said they would trim their earnings estimates as a result of those figures, which Novartis hadn't previously released.

Novartis said it expected drug sales to grow at a "high single digit rate" this year, compared with a previous estimate of "mid to high single digit" growth.

Overall revenue, which includes Gerber foods and Ciba Vision lens cleaners, will rise more than 10%, the company said.

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