Roche Profit Shows New Drugs Taking Off, Old Ones Dragging

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Roche Holding AG’s first-half earnings showed little change as the Swiss franc’s strength and competition for aging medicines wiped out the impact of the drugmaker’s new stable of therapies.

Earnings excluding some items, which Roche calls core operating profit, dropped to 9.24 billion Swiss francs ($9.64 billion) from 9.41 billion francs a year earlier, the Basel, Switzerland-based company said in a statement. That exceeded the 9.17 billion-franc average of eight analyst estimates compiled by Bloomberg. Sales rose 3 percent to 23.6 billion francs.

Roche, the world’s biggest maker of cancer drugs, is counting on new products like Perjeta, a breast tumor therapy that saw first-half sales surge 72 percent, and Esbriet, a lung medicine gained with last year’s acquisition of Intermune Inc., to buoy growth as its three top-selling drugs begin to lose patent protection in the next five years. The nine-year-old eye drug Lucentis suffered a sales drop, faced with competition from rival Bayer AG’s Eylea.

“Basically the old drugs are eroding faster, the new ones are exceeding forecasts,” said Fabian Wenner, an analyst at Kepler Cheuvreux in Zurich.

Roche rose 1.3 percent to 278.70 francs at 1:07 p.m. in Zurich trading. The stock has gained 8 percent in the past year, including reinvested dividends, trailing a 33 percent advance in the Bloomberg Europe Pharmaceuticals Index.

Better Medicines

Roche on Thursday repeated its forecast for sales this year to increase by a “low to mid-single digit” percentage, and for core earnings-per-share growth to exceed that excluding currency swings.

“I am very confident we will meet our full-year guidance,” Chief Executive Officer Severin Schwan said on a call with reporters. “Our aim has always been to drive innovation and replace older medicines with better new medicines. That’s exactly what we are doing.”

The company is developing several new medicines billed as potential blockbusters.

An experimental lung cancer drug, atezolizumab, doubled the likelihood of survival in a study, according to data presented at a cancer meeting in June. Roche’s ability to identify which patients will benefit most from the medicine may give it an advantage over Bristol-Myers’s Opdivo, analysts at UBS said at the time. Atezolizumab may reach 1 billion francs in sales by 2019, according to analyst estimates compiled by Bloomberg.

Alzheimer’s Advances

Roche said last month that an experimental multiple sclerosis drug, ocrelizumab, reduced relapses and disability progression in two late-stage studies. The company also plans to advance its experimental Alzheimer’s therapy crenezumab into late stage trials. The company also said it will continue developing gantenerumab, another Alzheimer’s drug that failed in a study last year, but which showed promise at its highest doses. Roche is working on new approaches to use the higher doses in ongoing and future studies.

“It’s encouraging to see first efficacy signals from a number of studies” on the memory-robbing disease, Schwan said.

Eli Lilly & Co. yesterday reported data from an extended trial of its experimental Alzheimer’s drug that showed patients who started earlier in their disease did better on follow-up memory and thinking tests. Lilly has a late-stage trial of the drug under way, and some analysts say it could generate more than $5 billion a year if successful.

Seeking Acquisitions

First-half sales at Roche were in line with analyst estimates. Sales in the pharmaceutical division climbed 3 percent to 18.4 billion francs, boosted by Perjeta, the new breast cancer drug that doctors are pairing with the older medicine Herceptin.

Roche continues to “screen the market for targeted bolt-on acquisition” that can deliver new products or technology, though high valuations are “a challenge,” Schwan said. The company has “no plans whatsoever” to sell its diabetes business, he said.

The profit measure Roche calls core earnings strips out discontinued operations and costs related to restructuring, legal expenses, impairment charges and other one-time events using IFRS Accounting Principles.

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