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Written by: Staff

ZURICH, Apr 24 (Reuters) Swiss drugmaker Novartis AG reported weaker first-quarter sales than expected on Monday as its generics division disappointed, but profits swelled thanks to a chunky one-off gain from the sale of a unit.

Sales at the company's pharmaceuticals division rose 9 percent to $5.052 billion, shy of a forecast of $5.132 billion on average in a Reuters poll of analysts, despite strong double-digit percentage growth in cancer and heart drugs.

Novartis's recently expanded Sandoz generics division, which makes copycat versions of off-patent drugs, reported lower-than-expected sales growth, in spite of last year's acquisition of a German and a U.S. generics business.

This weighed on group revenue growth for the first three months, with net sales rising 17 percent in local currencies to $8.301 billion compared with a forecast of $8.515 billion.

Shares at Novartis dropped one percent to touch 72.65 Swiss francs, underperforming the market.

''The quarterly result errs on the sobering side as a result of the development in revenues, in particular with regard to the already published good results of other pharmaceuticals firms,'' said Hernani de Faria, an analyst at Zuercher Kantonalbank.

Group net profit beat forecasts, rising 32 percent to $1.956 billion, boosted by a one-time gain of $129 million from the sale of Novartis's Nutrition&Sante business and a $66 million contribution from its share in rival Roche.

''The positive surprise was on the operating and net profit side due to the one-off gain on Nutrition&Sante,'' said LODH analyst Karl-Heinz Koch. ''The slight disappointment was in the Sandoz generics division where sales were about $100 million below expectations.'' OUTLOOK CONFIRMED Novartis reiterated its full-year outlook for group sales growth in high single digits, excluding its newly created Chiron division, and mid-to-high single-digit drugs sales growth.

The company also said that it expected to achieve another set of record earnings in the current year.

Novartis said its cardiovascular and oncology franchises reported double-digit sales growth in the quarter while acquisitions of two generic drug makers had swelled sales at the Sandoz generic drugs division.

Marketing and sales costs fell, helping to improve the operating margin by 3.7 percentage points to 32.2 percent of net sales, as less money was spent on launching new drugs.

DrKW analysts noted that cost controls were good.

However, with new products like hypertension treatment Rasilez, co-developed with Speedel, and oral diabetes treatment Galvus coming to the market soon, marketing expenses are set to rise in the course of the year, Novartis said.

In terms of the development pipeline, Novartis said it was still waiting for the U.S. regulator to give the green light to a late-stage clinical trial for its oral multiple sclerosis compound, which could delay the drug's launch.

Other projects were on track, Novartis said.

After last year's major generics acquisitions, Novartis overcame shareholder resistance earlier this month to snap up the stake in U.S. vaccines maker Chiron which it did not already own and will now form the business into a fourth business unit.

Novartis shares trade at around 18 times estimated 2006 earnings, in line with the sector average, but short of cross-town rival Roche's premium pricing.


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