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Roche to cut costs, review business after drug setbacks

Roche to cut costs, review business after drug setbacks
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First Published: Fri, Sep 03 2010. 03 08 PM IST
Updated: Fri, Sep 03 2010. 03 08 PM IST
Zurich/Basel: Swiss drugmaker Roche Holding AG will review its business and cut costs to cope with recent setbacks on key drugs and rising pressures on prices from healthcare reforms, it said on Friday.
The world’s largest maker of cancer drugs, once seen as the darling of the pharmaceuticals industry, has seen its crown slip after blows to its development programme this year and investors are now waiting to see whether the FDA will revoke approval for its blockbuster breast cancer drug Avastin.
“In view of mounting pressures to curb healthcare costs — especially in the United States and Europe — together with recent developments in late-stage projects in the Roche pipeline, this initiative aims to adapt cost structures and accelerate productivity improvements group-wide,” Roche said.
The group did not provide any details on the size of cost reductions or the number of staff and units affected. Detailed steps would be announced later this year and implemented in 2011, 2012.
“Cost savings could easily reach 2 billion Swiss francs ($1.9 billion) as of 2012 to 2013, which would boost our earnings per share forecast by some 10%,” said Helvea analysts Odile Rundquist and Karl-Heinz Koch.
Roche stock traded 1.8% at 0942 GMT, outperforming a 0.4% rise in the European healthcare index.
Roche stock has slipped over 20% so far this year, underperforming a 4% rise in the sector index.
Swiss newspaper Sonntag had reported on Sunday that the group could slash thousands of jobs across drug sales, research and development, production and the pharma division’s administration.
Cross-town rival Novartis, which recently shrugged off drug price cuts across Europe to raise its full-year sales goal on the back of strong demand for its newest products, said it had no need to make similar cost cuts.
“If it were necessary,” Novartis chairman Daniel Vasella told Reuters at a business event in Basel when asked if Novartis would take similar savings measures to Roche’s. “(But) it isn’t.”
Genentech Synergies
Roche could incur a one-off provision of 300 million Swiss francs to achieve cost cuts, said Kepler Capital Markets analyst Martin Voegtli.
“They will mainly be looking at the primary sales force and R&D for cuts, which will be mostly in the United States and Europe,” said Sarasin analysts David Kaegi.
There was overcapacity in the sales team — numbering around 1,500 in the United States and Europe — after a recent delay to its diabetes drug candidate taspoglutide and the fact Roche had one of the highest research and development spending rates in the industry offered scope for savings, Kaegi said.
The initiative should also lower the amount of company debt following Roche’s $46.8 billion acquisition of biotech company Genentech, which should yield further cost savings as Roche worked through synergies, analysts said.
The group is launching this initiative from a position of strength despite the recent setbacks, said chief executive Severin Schwan in a statement.
“We will focus our resources towards investments that will drive innovation and ensure the company’s long-term success, while at the same time protecting our profitability so as to safeguard our financial flexibility,” he said.
“Roche also confirms its full-year outlook for 2010,” he said.
Roche has said it sees double-digit core earnings per share growth at constant exchange rates this year after posting an 11% rise in core EPS in the first six months of the year, in line with its own guidance.
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First Published: Fri, Sep 03 2010. 03 08 PM IST