Roche Reports A "Solid" Third Quarter, But Expects Further EU Pricing Pressure

Roche's sales grew only 2% in the first nine months of 2010, held back by U.S. health care reform and EU price cuts, a decline in Tamiflu sales and adverse currency fluctuations.

Roche's sales were held back by 1.5% in the third quarter due to the impact of U.S. health care reform and European price cuts, company executives reported October 14. Those same factors may impact sales 2% in the fourth quarter as price cuts in more EU countries start to come into effect; next year, further implementation of U.S. health care reform legislation could combine with that tougher EU environment to reduce sales around 2-3%.

The executives described Roche's sales performance in the first nine months as "solid." Pharmaceutical division sales, excluding Tamiflu (oseltamivir) sales, increased by 2% to CHF 27.6 billion, while sales declined by 2% to CHF 28.4 billion if Tamiflu was taken into account. Roche does not report profits at the nine-month stage.

The financial results disappointed analysts, with third quarter sales missing consensus forecasts by about 2%. There was no particular area of weakness - instead Roche saw marginal misses from all key products and divisions.

UBS analysts looked ahead to a pipeline update on December 9, FDA's decision on the role of Avastin (bevacizumab) in metastatic breast cancer, expected on December 17, and Roche's roll out of its previously announced productivity program ('Roche Announces Internal Review Likely To Result In Staff, Program Cuts,' 'The Pink Sheet' DAILY, Sept. 3, 2010).

Roche chief executive officer Severin Schwan claimed that increasing pricing pressures in the EU and U.S. were only some of the factors behind the company's recent decision to set up the productivity improvement program, called Operational Excellence.

It was also necessary to free up resources to invest in the 12 or so late-stage new molecular entities that Roche is hoping to bring onto the market, Schwan claimed.

Further details of the program, which may include job losses, are to be made public by the end of the year. Schwan would not comment on the exact date, or whether it would be before or after the U.S. FDA's decision on the role of Avastin in metastatic breast cancer.

Tamiflu Effect

The decline in pandemic-related Tamiflu sales, to CHF 1 billion in the first nine months of this year compared with CHF 3.2 billion in the same period last year, was expected by the company.

But Roche was also adversely affected by the weakening of most major currencies against the Swiss Franc, and by the expiry of Cellcept (mycofenolate mofetil)' s patents, noted Roche's chief financial officer Eric Hunziker. However, the adverse effect of Cellcept's patent expiry on Roche's results will end in the fourth quarter of this year, he noted.

Despite these negatives, Roche confirmed its full-year outlook. It expects sales growth in local currencies excluding Tamiflu sales to be in the mid-single digit range for the group and the pharmaceutical division, and to have double-digit growth in earnings per share.

Products driving growth in the first nine months were Avastin, Herceptin (trastuzumab), MabThera/Rituxan (rituximab), Lucentis (ranibizumab), Actemra (tocilizumab) and Xeloda (capecitabine), said the chief operating officer of Roche's pharmaceutical division, Pascal Soriot. The six products contributed more than CHF 1.2 billion in additional sales over the nine months.

International Boost

Emerging/international markets were a bright spot for Roche, with sales growing by 11% over the nine months, led by strong gains in Brazil and China. Roche categorizes 'international markets' as all areas except the U.S., Japan and Western Europe.

Soriot reported that sales of Avastin, for example, had increased by 31% to reach CHF 660 million in the nine months in international markets, whereas U.S. sales had been affected by the uncertainty surrounding the breast cancer indication, and had only grown by 3% to CHF 2.5 billion.

Among products in R&D, Soriot pointed to the potential use of Avastin in ovarian cancer, where it had not only shown clinical value, but also highlighted the importance of the duration of therapy on clinical outcomes. He also noted that another anticancer in clinical trials, T-DM1, had shown similar efficacy to a combination of Herceptin and docetaxel in breast cancer patients, but was associated with a marked reduction in adverse effects like alopecia, neutropenia and diarrhea.

-John Davis ([email protected])