* Q3 core net income down 2 pct to $3.06 bln vs f'cast $3.13
* Sales down 6 pct to $12.27 bln vs f'cast $12.62 bln
* Alcon continues slump, recovery plan to be unveiled in Jan
* Shares down 1.8 percent (Adds quotes from CEO, additional information on lawsuits)
By John Miller
ZURICH, Oct 27 (Reuters) - Novartis agreed inprinciple to pay $390 million to settle U.S. allegations that itused kickbacks to speciality pharmacies to push sales of somedrugs, the Swiss company said on Tuesday, hitting third-quarterearnings.
The U.S. Department of Justice had sued Novartis in federalcourt, originally seeking up to $3.35 billion on grounds theworld's biggest seller of prescription drugs sought illegally toboost sales of drugs covered by the U.S.-government backedMedicare and Medicaid programmes.
The $390 million provision for a settlement, still pendingfinal agreement by U.S. authorities, pushed third-quarter netincome down 42 percent to $1.8 billion.
Novartis's underlying results also missed analyst forecasts,as weakness at its eyecare business Alcon and a strong dollaroffset the benefits of an enlarged cancer drug portfolioacquired from GlaxoSmithKline.
Its shares, down 3.7 percent this year, fell 1.8 percent to88.90 Swiss francs by 1142 GMT.
Chief Executive Joe Jimenez told reporters Novartis had madethe disputed payments to ensure patients took their drugs,including treatments to prevent rejection of transplantedorgans, but U.S. government attorneys disagreed.
"It's something we just believe we want to put behind us,"Jimenez said. Novartis said it neither admitted nor deniedliability as part of the settlement.
The lawsuit had accused Novartis of paying rebates to inducespeciality pharmacies to recommend iron-reducing Exjade andimmunosuppressant Myfortic. The case had been scheduled to go totrial on Monday.
Novartis had to pay $422 million in 2010 to settle a U.S.kickback probe.
A separate U.S. government claim accusing it of payingmultimillion-dollar kickbacks, including a $9,750 dinner forthree at a Japanese restaurant, is scheduled to go to trial in2016. Jimenez declined comment on any settlement talks.
INTENSE COMPETITION
The maker of painkiller Voltaren said core net income fell 2percent to $3.06 billion, compared with an average analystestimate of $3.13 billion in a Reuters poll. The figure rose 13percent at constant currencies.
Sales fell 6 percent to $12.27 billion, compared with thepoll average of $12.62 billion. The number was up 6 percent atconstant currencies.
Novartis's Sandoz generics unit posted strong sales of $2.3billion, led by a 28 percent increase in sales ofbiopharmaceuticals including its Glatopa version of Copaxone totreat multiple sclerosis.
But Alcon continued its slump, driven by declining surgicalequipment sales and generics competition. Jimenez said an Alconrecovery plan would be unveiled in January.
"It's a good business but it's suffering from some intensecompetition, as well as we have not been as innovative on Alconas we should be," he told Reuters. "The plan that we are goingto unveil in January ... will play heavily on the innovationfront."
New drugs including heart medicine Entresto, forecast togenerate $4.7 billion in sales in 2020 according to ThomsonReuters Cortellis, have not yet contributed significantly toresults. "It's very early," Jimenez said.
Novartis kept full-year guidance for annual sales to grow byaround 5 percent with core operating income growing at highsingle digits, stripping out currency effects. "We got whackedby currencies in this quarter," Jimenez said. "I still feel verybullish on our core business performance."($1 = 0.9823 Swiss francs) (Editing by Michael Shields and David Holmes)