Roche Holding AG (ROG) cut its peak sales forecast for Avastin, the world’s best-selling cancer drug, by about 20 percent as revenue fell in the wake of a regulatory move to revoke approval in breast tumors.
The company now expects the medicine to generate about 7 billion Swiss francs ($7.49 billion) in annual sales, compared with a previous forecast of as much as 9 billion francs, Basel, Switzerland-based Roche said in its full-year earnings report today. Second-half net income missed analyst estimates.
Roche won U.S. approval of Avastin for breast cancer in 2008 under an accelerated review that required the company to conduct trials proving the drug slows progression of the disease. Tests failed to meet this goal and an advisory panel in July recommended revoking marketing approval in breast cancer. Fourth-quarter revenue from the medicine dropped 5.1 percent to 1.46 billion Swiss francs.
“Fourth-quarter sales were quite a bit below expectations and the main shortfall was Avastin,” said Karl-Heinz Koch, an analyst at Helvea AG. “It seems to be flattening out and that’s been the main value driver for Roche.”
The company reduced its forecast because of the U.S. Food and Drug Administration’s decision, though the strength of the franc against other currencies also accounted for about 400 million to 500 million francs of the reduction in the sales forecast, Pascal Soriot, Roche’s pharmaceutical unit head, said on a conference call with analysts.
It could be between four and five years before Avastin reaches its peak sales, Soriot said in an interview. The forecast includes predicted sales in ovarian cancer. The company has asked European regulators to approve the medicine for this use and will seek U.S. approval “soon,” he said at a press conference.
The company has experienced several drug development setbacks this year, with a delay to the experimental T-DM1 breast cancer medicine and failures of Avastin in studies in prostate, stomach and early colorectal cancer. Roche said today it is stopping development of the taspoglutide diabetes treatment and returning rights to the developer, Ipsen SA.
Second-half net income fell 30 percent to 3.2 billion francs. Roche’s earnings are being hurt by the effect of health-care reform in the U.S. and government spending cutbacks elsewhere, Chief Executive Officer Severin Schwan said in a meeting with journalists. “Results are solid despite an increasingly challenging market environment,” he said in a statement.
Roche fell 50 centimes, or 0.4 percent, to 144 francs at the 5:30 p.m. close of trading in Zurich. The shares have declined 18 percent in the past year including reinvested dividends, compared with a 6.7 percent return for the Bloomberg Europe Pharmaceutical Index.
“When CEOs use the words ‘solid’ and ‘challenging market environment’ in close proximity, one does not expect the results that follow to be particularly good,” Jack Scannell, an analyst at Sanford C. Bernstein & Co., wrote in a research note. “Such was the case with Roche’s numbers.”
The company is also looking to offset the negative impact of changes to health-care systems in the U.S. and Europe. A program to reduce expenses cost Roche 1.3 billion francs in 2010. The stronger franc reduced the value of revenue generated in other currencies, while demand for the Tamiflu influenza drug fell as concerns about swine flu receded.
Roche said it expects earnings per share excluding some items to increase by high-single digits this year at constant exchange rates. Sales are expected to grow at low single-digit rates in local currencies, “in line with expected market growth,” the company said. The outlook excludes Tamiflu, which had a 73 percent drop in full-year revenue to 873 million francs. Diagnostics sales will rise “significantly ahead of the market,” Roche said.
Health-care reform will have stripped about 1 billion francs from sales by the end of this year following a 532-million franc impact in 2010. The U.S. government wants drugmakers to increase discounts and rebates to programs that provide medicines to the poor and elderly.
Pharmaceutical sales were 8.7 billion in the fourth quarter, a 13 percent decline from a year earlier. Group sales fell 10 percent to 11.4 billion francs.
Roche doesn’t report second-half earnings. Bloomberg calculated the results by subtracting first-half profit from the full-year number.
The company in November said it would cut 4,800 jobs to generate savings of 1.8 billion francs in 2011 and about 2.4 billion a year from 2012. The cost-cutting program, called Operational Excellence, was also expected to result in total restructuring costs of about 2.7 billion francs through 2012.
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