Roche to Boost Productivity, Cut Costs After Setbacks
Roche to Reduce Costs, Cut Jobs After Drug Setbacks
Adrian Moser/Bloomberg
The headquarters of Roche AG stand in Basel, Switzerland.
The headquarters of Roche AG stand in Basel, Switzerland. Photographer: Adrian Moser/Bloomberg
Roche CEO Severin Schwan
Chris Ratcliffe/Bloomberg
Roche’s Chief Executive Officer Severin Schwan said, “We have launched this initiative from a position of strength.”
Roche’s Chief Executive Officer Severin Schwan said, “We have launched this initiative from a position of strength.” Photographer: Chris Ratcliffe/Bloomberg
Roche Holding AG, the world’s biggest maker of cancer treatments, plans to reduce costs and cut jobs in an attempt to counter pressure on drug prices and research setbacks.
The plan, dubbed Operational Excellence, will be carried out in 2011 and 2012, the Basel, Switzerland-based company said today in an e-mailed statement. All parts of the company will be reviewed over the coming months and details on specific measures and potential job cuts will be announced before the end of the year, Roche said. The company confirmed its forecast for 2010.
Roche has had drug development setbacks this year, including delays to the experimental T-DM1 breast cancer medicine and the taspoglutide diabetes treatment, and the failure of ocrelizumab in rheumatoid arthritis. The company’s top-seller, the cancer drug Avastin, may shed $1 billion in annual revenue if U.S. regulators follow a panel recommendation to revoke approval of the drug for use in breast cancer, Sanford C. Bernstein & Co. analyst Tim Anderson said in a July report.
“We have launched this initiative from a position of strength,” Roche’s Chief Executive Officer Severin Schwan said in the statement. “By contrast with many of our competitors, we are only marginally affected by patent expiries. Furthermore, despite recent setbacks, we have one of the strongest research and development pipelines in the industry.”
Shares Rise
Roche shares gained as much as 1.8 Swiss francs, or 1.3 percent, to 141.5 francs in Zurich trading. They traded up 1.2 percent at 10:23 a.m.
“Roche has finally bowed to investor pressure and announced a restructuring/operational excellence program, albeit with no numbers,” Emmanuel Papadakis, an analyst at Collins Stewart in London who rates the company “sell,” said in a note to investors. “This doesn’t change our view, and certainly not until we see some numbers.”
Andrew Weiss, an analyst at Bank Vontobel AG in Zurich who rates Roche “buy,” estimated that the company could save between 1 billion ($985 million) and 2 billion Swiss francs.
A U.S. advisory panel in July recommended regulators revoke approval for Avastin in breast cancer, saying it doesn’t work well enough in such malignancies. The FDA usually follows its advisory panels’ recommendations, though it isn’t required to do so. The regulator, which ignored the panel’s advice when it granted Avastin conditional approval for breast cancer in 2008, is scheduled to make a final decision by Sept. 17.
Peak Sales
Peak annual sales of the medicine will likely be at the low end of the company’s current forecast of 8 billion francs to 9 billion francs if the FDA decides to revoke approval, Schwan said July 22.
Research presented at a medical conference in June showed that patients given Roche’s taspoglutide diabetes medicine in clinical testing were more likely to report nausea and vomiting. Roche said earlier in the month it would delay seeking regulatory approval for the treatment by at least 12 to 18 months because too many patients suffered side effects. The Swiss drugmaker, which bought rights to the compound from Ipsen SA, may drop development of the product, Morgan Stanley analysts said at the time.
Approval for the experimental breast cancer drug trastuzumab-DM1 may be delayed by about two years after Roche said Aug. 27 that U.S. regulators had turned down an application for accelerated approval. The company in May said it would stop developing ocrelizumab in rheumatoid arthritis after the drug was linked to serious infections.
Pressure
U.S. and European government pressure on drug prices has led to similar cost-cutting programs at Roche’s rivals. Merck & Co., the second-largest U.S. drugmaker, last year said it would axe 15 percent of the company’s workforce, or 15,000 jobs, and cutting 2,500 vacant positions by 2012 as part of the first phase of restructuring following its purchase of Schering- Plough. Merck plans to save $3.5 billion by 2012.
Pfizer Inc., the world’s largest drugmaker, has been firing workers and shutting facilities following its $68 billion buyout last year of Madison, New Jersey-based rival Wyeth. It has said it will cut 19,000 jobs, close eight manufacturing plants and eliminate six research centers as it seeks to lower costs.
To contact the reporter on this story: Dermot Doherty in Geneva at ddoherty9@bloomberg.net
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