Novartis overhauls Japanese unit after drug scandal

* Diovan sales hit but overhaul business impact limited

* Company says controls, training in Japan were inadequate

* Head (Other OTC: HEDYY - news) of Japan unit leaves, two executives have pay cut

By Yoko Kubota

TOKYO, Oct (KOSDAQ: 039200.KQ - news) 3 (Reuters) - Novartis AG (Berlin: NOT.BE - news) said on Thursday it had overhauled management operations and sanctioned key staff in Japan after a scandal involving research into its Diovan blood pressure drug in the country.

The Swiss company's pharmaceutical head David Epstein said the episode would not have a significant impact on the group's profits, although he acknowledged sales of the drug had fallen.

"Overall Diovan is a relatively small part of our portfolio, given the breadth of the medicines that we have, so the impact should not be significant," Epstein said.

Epstein told a news conference that oversight at its Japan unit had fallen short and, as a result, Novartis was setting up a compliance advisory panel to prevent future such problems.

"Clearly there should have been more control as well as better training in Japan," Epstein said. "Unfortunately that was not the case. Those controls are now in place so that this cannot happen again."

He also acknowledged, in response to a reporter's question, that the company should have paid more attention to questions raised by some outside experts about the studies into Diovan.

A Japanese health ministry panel this week called for the ministry to investigate Novartis Pharma, the company's Japanese arm, saying it may have violated the law when it cited studies based on allegedly manipulated data.

Japan accounted for around a quarter of Diovan's global sales before the scandal and, overall, it made up 9 percent of total group sales in 2012, or $5.36 billion.

Diovan was once Novartis' top-selling product but its importance is declining and the patent on the medicine is due to expire in Japan this year.

Several Japanese hospitals have stopped offering Diovan after two Japanese universities retracted papers regarding the drug's efficacy in reducing the incidence of stroke and angina.

While Novartis has said a former employee who assisted in the trials had acted inappropriately, the interim report said the case involved the company as a whole.

Epstein said the report left unclear who manipulated data and for what purpose, but acknowledged potential damage from the scandal to the company's reputation.

"Clearly if something happens in one market and impacts our reputation, that's something that we feel acutely all around the world. So we will work very hard to regain your trust," he said.

Epstein said the company was setting up a panel of seven to nine members, including outside experts, to advise the Japan unit on how to prevent further such problems.

Novartis global Chief Commercial Officer Eric Cornut will be transferred from headquarters to serve as Japan unit's chairman. The previous head of the unit left the company as of Monday and two other senior executives are taking a 30 percent pay cut until the case is resolved.

Japan's pharmaceutical lobby group, the Japan Pharmaceutical Manufacturers Association, said on Thursday it was suspending Novartis's membership rights in the organisation.