Roche Holdings Ltd. (RHHBY) recently announced its sales numbers for the first-quarter of 2011. Total revenues for the quarter were $11,815 million, representing a flat growth (in local currencies) over the prior year primarily due to lower-than-expected performance of the Pharmaceutical segment. Excluding the impact of the previously anticipated decline in Tamiflu sales, group sales rose 2%. Sales were slightly above the Zacks Consensus Estimate of $11,757 million.
Geographically, sales were up 2% in the US but down 4% in Western Europe and 7% in Japan. Overall, the sales growth was impacted by the healthcare reforms, as well as pricing pressures in certain European countries and price cuts in Japan. The top line in US and Europe was particularly impacted by declining sales of Avastin for the breast cancer indication. In the international region (comprising of Asia–Pacific, Central and Eastern Europe, Middle East, Africa, Central Asia, Indian Subcontinent, Latin America, Canada and others), sales were down 3% due to a substantial decline in sales of Tamiflu. Excluding Tamiflu, sales were up 6% with some emerging countries delivering strong gains.
Roche records revenues under two segments – Pharmaceuticals Division and Diagnostics Division.
The Pharmaceuticals Division sales declined 2% primarily reflecting a considerable reduction in sales of Tamiflu (47%), Avastin (6%) and Pegasys (15%), US health care reforms, European austerity measures and price cuts in Japan. Avastin sales were down due to decline in sales in the breast cancer indication (due to a possible discontinuation of use in the indication). Pegasys sales were down due to weak sales in US and delay in treatment by patients as they await the launch of a new generation of direct-acting antiviral. These factors more than offset the robust growth of MabThera/Rituxan (7%), Herceptin (8%), Xeloda (7%) and Tarceva (8%). Sales of newly launched drugs like Actemra/RoActemra (up 111%), Activase (up 23%) and Lucentis (up 35%) also helped boost revenues in the first quarter.
The conclusion of the influenza A (H1N1) pandemic resulted in the fall of Tamiflu sales. Excluding Tamiflu, Pharmaceutical revenues were up 1%.
Revenues from the Diagnostics Division shot up 6%, with a 10% increase in the Professional Diagnostics sub-segment and an 18% growth in the Tissue Diagnostics sub-segment.
Outlook for 2011
Roche reiterated its 2011 guidance issued earlier. Roche expects total revenue and revenues from the Pharmaceuticals Division to grow at low single-digit rates. The growth rate excludes revenues from Tamiflu but includes the impact of US health care reform and European austerity measures.
While Pharmaceuticals sales are expected to grow in line with the market, sales from the Diagnostics segment are expected to surpass the market. The performance of the Diagnostics segment is expected to be driven by the launch of new products.
Roche anticipates earnings and dividend payouts for fiscal 2011 to grow at a high single-digit rate.
Further, Roche expects to reduce debt progressively and return to a net cash position by 2015.
Pipeline Update
Roche has announced positive data from seven phase II and phase III clinical trials since the beginning of 2011. Of these, six are expected to support regulatory application for new drugs or for expanded use of already marketed drugs. Roche announced data from trials studying vemurafenib, the BRAF inhibitor, for treatment of metastatic melanoma and vismodegib for the treatment of advanced basal cell carcinoma.
In the first quarter of 2011, Roche gained approval for marketing Actemra for the treatment of rheumatoid arthritis and MabThera/Rituxan for the treatment of advanced follicular lymphoma in the US. In Japan, Roche received approval to market Edirol for the treatment of osteoporosis, Herceptin for the treatment of advanced stomach cancer and Xeloda for the treatment of advanced or recurrent stomach cancer.
Our Take
We are encouraged by the overall top-line performance of Roche despite the challenges faced by the company like a maturing key drug franchise, top-line weakness in US and Western Europe, as well as the increasing threat from biosimilars. We await a string of news flow in 2011.
