* Q1 net profit $2.0 bln, ahead of forecasts of $1.88 bln
* Reiterates outlook but warns of more currency losses
* Economic crisis hits consumer health
* Cost cuts ahead of schedule
* Shares up 4 percent
(Adds analysts' reaction, share price)
By Emma Thomasson
ZURICH, - Novartis AG (NOVN.VX) reported a better than expected first-quarter net profit on Thursday, down 14 percent due to a stronger U.S. dollar, as it warned ongoing currency losses could hit its full-year results.
The Swiss drugmaker's results contrast with setbacks for rivals Roche Holding AG (ROG.VX) and GlaxoSmithKline Plc (GSK.L) on Wednesday -- hit by a clinical trial failure and profit shortfall -- and its shares rose 4 percent in early trade.
Tim Anderson, industry analyst at Sanford Bernstein, said it was a decent performance, especially as there had been occasional concerns that Novartis earnings might fall short in the quarter, which didn't happen.
Novartis said net sales fell 2 percent to $9.7 billion, but rose 8 percent in local currencies due to a strong performance by new products from its pharmaceuticals division where sales rose 3 percent to $6.43 billion.
Because the company reports in dollars it has suffered from the weakness of European and other currencies against the greenback.
Net profit fell to $2.0 billion, which Novartis said was hit by a drop in average net liquidity and financing costs for its purchase of a 25 percent stake in eyecare group Alcon (ACL.N) as well as currency effects.
Analysts in a Reuters poll had on average expected net profit to fall 19 percent to $1.878 billion on net sales down 1.8 percent at $9.73 billion. Net pharma sales had been expected to rise 1.5 percent to $6.358 billion.
The pharmaceutical sector is more resilient than most industries to the economic downturn as healthcare is usually one of the last areas where consumers cut back spending -- but it is not immune.
The leading tracker of prescription drug data, IMS Health, now expects the global drugs market to grow by just 2.5-3.5 percent in 2009, down 2 percentage points from the forecast it issued six months earlier.
Novartis said its consumer health division, where sales fell 11 percent to $1.3 billion, was feeling the pinch with over-the-counter sales down in some emerging markets and the United States, while animal health sales were also off.
"The uncertain economy and currency market volatility create an opportunity to continue to enhance productivity and manage costs," Chief Executive Daniel Vasella said in a statement.
CUTTING COSTS
Novartis said a cost-cutting project launched in late 2007 was ahead of schedule, delivering $329 million of savings in the first quarter. It said it expects to exceed goals of $1.3 billion of savings in 2009 and $1.6 billion in 2010.
Deutsche Bank analysts said the group was deploying its cost savings programme aggressively, resulting in an operating margin of 24.2 percent -- better than its forecast of 22.3 percent.
Novartis reiterated its full-year target for net sales growth at a mid-single-digit rate and pharmaceuticals net sales growth at a mid- to high-single-digit rate, both in local currencies.
But it warned currency-related losses could more than offset underlying operating and net income gains to record levels in 2009 if recent exchange rates continue during the year.
Novartis said in February adverse currency movements could cut 8-10 percentage points off its first-quarter operating and net income.
Novartis said its Sandoz generics unit did well with sales up 4 percent in local currencies on sustained growth in many regions, although sales fell 9 percent in U.S. dollars.
Novartis, which faces the looming loss of patent protection for its top-selling Diovan blood pressure drug, said new products fuelled growth in the pharmaceuticals division, with market share gains in 11 of the top 15 countries.
Novartis shares have been trading at about 8 times forecast 2010 earnings, a premium to other big drugmakers Sanofi-Aventis SA (SASY.PA) and AstraZeneca Plc (AZN.L) and in line with GlaxoSmithKline Plc (GSK.L) thanks to its promising new drugs.
But it is still at a discount to local Swiss rival Roche Holding AG (ROG.VX), which is less exposed to copy-cat generic competition and the economic downturn. (Additional reporting by Ben Hirschler in London; Editing by Greg Mahlich)
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