Roche Sees Profit Growth in 2012 on Cost Cutting as Drug Sales Accelerate

Roche Holding AG (ROG), the world’s biggest maker of cancer drugs, forecast high single-digit percentage growth in earnings per share this year, disappointing some investors as new products start to contribute to sales.

Net income last year rose to 9.5 billion Swiss francs ($10.3 billion) from 8.9 billion francs a year earlier, the Basel, Switzerland-based company said today in a statement on its website. Earnings per share excluding some items were 12.30 francs, falling short of the 12.46-franc average estimate of 26 analysts surveyed by Bloomberg.

The forecast was “underwhelming” and investors hoped the company would commit to giving more of the proceeds back with a bigger dividend next year, analysts at JP Morgan Chase & Co. wrote in a report today. Roche has cut costs and two new skin cancer drugs -- Zelboraf for metastatic melanoma and Erivedge for advanced basal cell carcinoma -- are poised to add to sales.

“Zelboraf seems to be doing very, very well amongst the 50 percent or so of the metastatic melanoma patients who are eligible for it,” Jack Scannell, a London-based analyst for Sanford C. Bernstein Ltd., said in a telephone interview. “It may end up being the first-line choice, which isn’t what everyone had expected.” He rates the stock “outperform.”

The company said it would continue its “attractive dividend policy” even as it pursues a $5.7 billion hostile takeover offer for U.S. gene-mapping company Illumina Inc. (ILMN)

“Just to say that Illumina isn’t impacting our attractive dividend policy is a commitment in itself,” Chief Financial Officer Alan Hippe said in an interview.

Illumina Bid

Revenue fell 10 percent to 42.5 billion francs last year, hurt by the strength of the Swiss currency against the dollar and euro. At constant exchange rates, sales climbed 1 percent.

Sales will rise in the low to mid-single digits at constant exchange rates this year, Roche said. Diagnostics sales growth will exceed the market, the company said.

The Swiss drugmaker is building its diagnostics division with the Illumina bid it began last week. Roche hasn’t entered into a constructive dialogue with the U.S. company yet, Chief Executive Officer Severin Schwan said on a conference call with reporters.

“We have offered full and fair value to the shareholders of Illumina,” Schwan said. “This is a very attractive offer which creates value for both organizations.”

No Plan B

Roche yesterday said it would nominate six candidates for election to Illumina’s board at the San Diego-based company’s annual meeting. Roche wants to increase the size of the board from nine directors to 11, which would give its nominees a majority if they’re elected.

“I don’t think there’s any Plan B relative to this type of acquisition” of a gene-sequencing company, Daniel O’Day, head of Roche’s diagnostics unit, said in an interview. “They’re the leaders. We want to invest in them.”

Roche will continue to look at other makers of diagnostic technology for small- to medium-sized deals, O’Day said.

Roche fell 1.5 percent to 153.40 francs at the close of trading in Zurich. The shares have returned 11 percent in the past year including reinvested dividends, compared with a 17 percent return for the Bloomberg Europe Pharmaceutical Index.

Rituxan Leads Sales

The drugmaker cut jobs in the U.S. and Europe last year as sales of its Avastin tumor therapy declined. Revenue from Avastin fell 7 percent at constant exchange rates to 5.3 billion francs. The Food and Drug Administration revoked approval of the drug for breast cancer in November, saying its benefits didn’t outweigh side effects such as bleeding and high blood pressure.

Photographer: Adrian Moser/Bloomberg

Roche Holding AG Chief Financial Officer Alan Hippe said, “Just to say that Illumina isn’t impacting our attractive dividend policy is a commitment in itself.” Close

Roche Holding AG Chief Financial Officer Alan Hippe said, “Just to say that Illumina... Read More

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Photographer: Adrian Moser/Bloomberg

Roche Holding AG Chief Financial Officer Alan Hippe said, “Just to say that Illumina isn’t impacting our attractive dividend policy is a commitment in itself.”

Avastin no longer is the company’s top-seller. It was displaced by Rituxan, another cancer therapy, whose sales rose 8 percent to 6 billion francs.

Expense reductions announced in 2010 saved the targeted 1.8 billion francs last year and will lead to 2.4 billion francs in savings this year, Roche said.

Roche will pay an annual dividend of 6.80 francs a share, the company said, up from 6.60 francs a year earlier.

To contact the reporter on this story: Naomi Kresge in Berlin at nkresge@bloomberg.net

To contact the editor responsible for this story: Phil Serafino at pserafino@bloomberg.net

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