Corrected - Novartis profit hit by $390 mln settlement in U.S. kickbacks case

(Corrects biopharmaceuticals sales figure in paragraph 11 to $186 million from $128 million)

By John Miller

ZURICH (Reuters) - Novartis has agreed in principle to pay $390 million to settle U.S. allegations that it used kickbacks to speciality pharmacies to push sales of some drugs, the Swiss company said on Tuesday, hitting third-quarter earnings.

The U.S. Department of Justice had sued Novartis in the Manhattan federal court, saying the world's biggest seller of prescription drugs sought illegally to boost sales of drugs covered by Medicare and Medicaid.

The $390 million settlement, still pending approval, pushed Novartis's third-quarter net income down 42 percent to $1.8 billion.

Novartis's underlying results also missed analyst forecasts as weakness at its eye-care business Alcon and a strong dollar offset the benefits of an enlarged cancer drug portfolio acquired from GlaxoSmithKline .

Chief Executive Joe Jimenez told reporters Novartis had made the disputed payments to ensure patients took the drugs, including treatments to prevent rejection of transplanted organs, but U.S. government attorneys disagreed.

"We're not admitting liability, it's something we just believe we want to put behind us," he said.

Novartis shares fell 2 percent to 88.60 Swiss francs by 08:00 GMT.

The lawsuit accused Novartis of paying rebates to induce specialty pharmacies to recommend iron-reducing Exjade and immunosuppressant Myfortic.

The maker of painkiller Voltaren said core net income fell 2 percent to $3.06 billion, compared with an average analyst estimate of $3.13 billion in a Reuters poll. The figure rose 13 percent at constant currencies.

Sales fell 6 percent to $12.27 billion, compared with the poll average of $12.62 billion. The number was up 6 percent at constant currencies.

Novartis's Sandoz generics unit posted strong sales, led by a 28 percent increase in sales of biopharmaceuticals, including its Glatopa version of Copaxone to treat multiple sclerosis, to $186 million. But Alcon continued its slump, driven by declining surgical equipment sales and generics competition.

But Alcon continued its slump, driven by declining surgical equipment sales and generics competition.

"Alcon had another bad quarter," wrote analysts from Barclays. Jimenez said an Alcon recovery plan would be unveiled in January.

New drugs including heart medicine Entresto, forecast to generate $4.7 billion in sales in 2020 according to Thomson Reuters Cortellis, have not yet contributed significantly to results. "It's very early to see," Jimenez said.

Novartis maintained full-year guidance for annual sales to grow at a mid-single-digit percentage rate, with core operating income growing at high single digits, stripping out currency effects.

($1 = 0.9823 Swiss francs)

(Editing by Michael Shields and David Holmes)