UPDATE: Roche Disappoints As Revamp Costs, Reforms Weigh
February 02 2011 - 3:04AM
Dow Jones News
Massive restructuring charges and slowing sales in the U.S. and
Europe hit Roche Holding AG's (ROG.VX) 2010 earnings, but the
world's largest maker of cancer drugs Wednesday said it was
confident to grow sales and profits this year as its pipeline
remained strong despite recent setbacks.
The Basel-based company said full-year net profit rose 11% to
8.67 billion Swiss francs, or $9.03 billion, from CHF7.78 billion
in the year-earlier period, which was weighed down by CHF2.4
billion in expenses for the takeover of Genentech. The 2010 figure
undercut analysts views of CHF9.66 billion as Roche took a CHF1.3
billion restructuring charge for its ongoing revamp, including
nearly 5,000 job cuts and unit divestments.
Sales also missed already-subdued market expectations. Revenue
dropped 3% to CHF47.47 billion from CHF49.05 billion, hurt by the
absence of revenue from flu drug Tamiflu, which in the year-earlier
period benefited from brisk demand linked to the flu pandemic, and
as the strong Swiss franc, its reporting currency, shaved off part
of the company's sales. In local currencies, sales remained
flat.
While Roche's key cancer drugs Avastin, Mabthera and Herceptin
were able to grow between 7% to 9% worldwide, overall pharma sales
were held in check by the U.S. healthcare reform and austerity
measures in European countries such as Greece and Spain. Thanks to
a strong performance in emerging markets, which make up around 25%
of the company's drug sales, Roche was able to cushion the hit from
price cuts in industrialized countries.
"The group results are solid despite an increasingly challenging
environment", Roche chief executive Severin Schwan said, noting
that the company's core pharmaceuticals division outperformed the
overall pharma market. Schwan said that the company's late-stage
experimental drugs "form a strong base for the company's future
success," giving Roche confidence to achieve solid sales and profit
growth in 2011.
Roche targets low single-digit sales growth and high
single-digit core earnings per share growth in 2011. But analysts
said the targets were somewhat disappointing, reflecting the
company's cautious stance. Some analysts had expected Roche a
bolder outlook, as cost savings from ongoing restructuring should
have a marked effect on earnings.
Roche was under pressure during much of 2010 as pipeline
setbacks, increased regulatory scrutiny and global austerity
programs hurt its business, prompting the Swiss drug maker to
launch a multibillion dollar restructuring that should be completed
during the next two years.
Despite these setbacks--which have pushed Roche's stock more
than 20% lower during 2010--the company still owns a strong
pipeline and expects to submit as many as 10 new medicines by the
end of 2013. In January, the company said that late stage trials
showed its experimental skin-cancer drug RG7204 to be
effective.
Some analysts, however, were cautious about Roche's bullish
stance after the company Wednesday said it has decided to stop the
development of diabetes drug taspoglutide and return the rights to
Ipsen (IPN.FR). Although the experimental medicine already last
year ran into problems due to side effects in late-stage trials, it
was once touted by Roche as a potential blockbuster drug. Analysts
also said that its expensive eye drug Lucentis could suffer from
future sales declines should tests show that Roche's own drug
Avastin is also effective in treating certain eye diseases.
Given the increased regulatory scrutiny and growing reluctance
from governments and insurers to reimburse expensive drugs,
analysts believe Roche will face an uphill struggle over the next
two years, which could intensify once some of its key drugs such as
Mabthera lose patent protection. Also, concerns about the use of
Roche's Avastin to treat breast cancer patients in the U.S. are set
to weigh on the company, which will have to speed up its revamp to
win back shareholder trust, analysts say.
Roche, meanwhile, lifted its dividend by 10% to CHF6.6 per
share, mimicking other industry players such as AstraZeneca PLC
(AZN) and Novartis AG (NVS), which have also raised dividends and
launched share buybacks in a bid to appease and hold investors,
increasingly disappointed about a sector which traditionally
produced high sales and profit growth.
Shares of Roche, which closed at CHF144.5 on Tuesday, were
indicated to open 2.1% lower on the Swiss bourse.
-By Goran Mijuk, Dow Jones Newswires, +41 43 443 80 47;
goran.mijuk@dowjones.com
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