With most of the major pharmaceutical companies reporting earnings for the quarter in the past week, it appears the European pharmas are soundly beating their American brethren in terms of sales and earnings growth. Swiss-based Novartis (NYSE:NVS) continued this trend when it announced its quarterly results last week.

Novartis showed strength in all of its divisions except for generic drugs. Pharmaceutical sales were up 13%. Last year's acquisition, Chiron, contributed $374 million to the previously nonexistent vaccines division, and consumer health sales grew 4%, leading to overall revenue gains of 13%.

Very nicely, Novartis breaks out all the reasons for the increased sales; 7% of the 13% increase in sales was due to acquisitions and 5% was due to selling a higher volume of goods. It would be nice if Novartis' internal products were growing faster, but the company does expect "double-digit net sales growth" for all of 2006 nonetheless.

On the back of this solid sales growth, earnings grew 12% and earnings per share gained $0.09, to $0.80 a share. Pharmaceuticals was by far the largest component of operating income, contributing $1.8 billion of the $2.1 billion in total operating income (85%) despite only accounting for 61% of sales. This emphasizes the high-margin nature of branded pharmaceutical sales and the low margins achieved by generic drugs, since Sandoz only added $87 million to operating income, yet accounted for 15% of total sales.


% of total sales

Oper-ating margins

% of operating income






Vaccines/ diagnostics





Sandoz (generics)





Consumer health





*in millions

Despite being one of the large-cap pharmas, the company is highly dependent upon two drugs; Gleevec and Diovan account for a large portion of Novartis' pharmaceutical sales. The two products combined for a total of $5 billion in sales for the first nine months of the year, exhibiting solid double-digit growth.

With Gleevec and Diovan go Novartis' fortunes in the near term, but there are some exciting drug candidates in the pipeline. One, FTY720, is in phase 3 trials and could become the first non-injectable treatment for multiple sclerosis if Novartis can keep its timeline of filing for approval in 2009.

With no major generic threats on the horizon, and steadily growing sales in most of its divisions and among its top drugs, Novartis looks like a good investment for risk-adverse investors searching for a large-cap pharma stock.

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Fool contributor Brian Lawler does not own shares of any company mentioned in this article. The Fool has adisclosure policy.