Swiss drugmaker Novartis posted a smaller than expected fall in second-quarter core earnings and said tight cost control and strong sales of new drugs would help it cope with a bigger than anticipated drag from a stronger dollar.

Like many of its rivals, Novartis is struggling to grow in the face of patent expiries on key drugs, particularly Diovan for high blood pressure. It is relying on new products, like multiple sclerosis pill Gilenya, to fill the gap.

The group now expects the strong U.S. currency to shave 4% off full-year sales and about 3-4% off operating income, assuming June average exchange rates prevail, up from previous guidance for an impact of 2-3% on both.

But Novartis confirmed its full-year outlook for net sales in constant currencies to meet those of 2011 and for the core operating income margin to be slightly below 2011.

Investors were reassured by the better than expected quarterly earnings, which Jefferies analysts said showed good cost control and efficiency gains, and the shares rose nearly 1% in early trade.

The brokerage said caution over the full-year impact of generic competition for Diovan and the slow resolution of problems in the consumer division likely explained why Novartis remained "conservative" on its 2012 outlook.

Novartis reported that second-quarter core earnings per share fell 7% to $1.38, beating analysts' consensus forecast of $1.33 in a Reuters poll, while net sales fell 4% to $14.3 billion, compared with a poll average of $14.28 billion.

Limited production has now resumed at a consumer health manufacturing site in Lincoln, Nebraska, which has annualised sales of $1 billion. Production was suspended at the site in December due to quality issues, hitting first-quarter sales.

Novartis, whose figures kick off the Big Pharma earnings season in Europe, said the site had resumed production of two products, Sentinel and Ecedrin, although the unit is not expected to resume shipping products until the fourth quarter.

Portfolio rejuvenation

Sales of its newest drugs rose 8% in the quarter, helping to offset declines in Diovan which went off patent in Europe last year and will lose exclusivity in the United States this September.

Novartis said products launched since 2007, including Gilenya, Lucentis, Afinitor, Tasigna and Galvus, now make up 29% of group net sales, up from 25% a year ago.

Gilenya saw first-half sales of $530 million and Chief Executive Joe Jimenez told a conference call for journalists the drug was on track to exceed $1 billion of sales this year, underscoring a "continued focus on portfolio rejuvenation".

Analysts, on average, expect Gilenya sales of $1.1 billion in 2012, rising to $2.3 billion by 2016, according to a consensus forecast compiled by Thomson Reuters Pharma.

Novartis, as a dollar reporter, is not alone in grappling with the effects of a stronger U.S. currency. Rival U.S. healthcare group Johnson & Johnson earlier this week cut its 2012 profit view due to the greenback's rebound, while Abbott Laboratories also cited a harsh effect, though it kept its outlook unchanged.

In addition to patent losses and currency swings, the international drugs industry also faces pressure mounting pressure on prices in many parts of the world, particularly in Europe, where austerity measures have hit health budgets hard.