Roche Holdings Ltd.’s (RHHBY) earnings came in at $1.85 per share for the first half of fiscal 2011, compared with $1.61 reported in the year-ago period.
Earnings were helped by reduced research and development and financial expenses and a lower tax rate.
Half-yearly revenues declined 12% (in Swiss francs) from the year-ago period. However, revenues increased slightly from the previous year figure to $23,955 million, primarily due to favorable exchange rate movements.
Half-yearly Details
Roche reports revenues under two segments: Pharmaceuticals Division and Diagnostics Division.
Sales for the Pharmaceuticals Division declined 13%, primarily due to a considerable reduction in Tamiflu and Avastin (8%) sales; decline in CellCept sales (14%), due to loss of US patent protection in May 2009; and a drop in the NeoRecormon/Epogin franchise sales (20%) as a result of continued competition, and the impact of US health care reforms, European austerity measures and price cuts in Japan.
These factors more than offset the robust growth of MabThera/Rituxan (6%), Herceptin (10%), Xeloda (4%) and Tarceva (4%). Newly launched drugs like Actemra/RoActemra and Lucentis also reported strong sales in the first half of 2011.
While a relatively mild influenza season and the completion of most government stockpiling orders resulted in a drop of Tamiflu sales, Avastin sales were affected by the regulatory and reimbursement uncertainty surrounding the metastatic breast cancer indication of the drug.
Revenues from the Diagnostics Division slid 8%, attributable primarily to a 16% decline in the Applied Science segment, 11% decline in the Diabetes Care segment and a 10% plunge in the Molecular Diagnostics segment.
Roche’s operating profit increased 5%, driven by savings from the Operational Excellence Program. Operating profit margin increased 90 basis points to 38.1% in the first half of 2011.
Outlook for 2011
Following the financial results for the first half of fiscal 2011, Roche increased its expectation for 2011, now seeing total revenue and revenue from the Pharmaceuticals Division growing in the low single-digit rates. The growth rate excludes revenues from Tamiflu but includes the impact of US health care reform and European pricing pressure.
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 for fiscal 2011 to grow 10% in local currencies.
Operational Excellence Program
As a result of the Operational Excellence Program during the first half of 2011, the company generated savings of 950 million Swiss francs.
The Operational Excellence Program is expected to generate annual savings worth 1.8 billion Swiss francs in 2011 and 2.4 billion Swiss francs from 2012 onwards. During the course of the implementation of the program (2010 to 2012), Roche expects to incur restructuring costs of 2.7 billion Swiss francs, which includes cash-related costs worth 1.5 billion Swiss francs.
Roche, which competes with companies like Eli Lilly & Co. (LLY), Bristol-Myers Squibb Co. (BMY), and GlaxoSmithKline plc (GSK), currently carries a Zacks #2 Rank (short-term Buy rating).
