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Roche FY11 Profit Rises Despite Sales Drop; Sees Growth In FY12 - Update

2/1/2012 2:28 AM ET

Swiss pharma giant Roche Holding AG (RHHBY.PK), which has launched a $5.7 billion hostile cash bid for U.S-based Illumina Inc. (ILMN: Quote), reported Wednesday a 7 percent rise in fiscal 2011 profit driven by tight expense management and increased sales volumes. This was despite challenges posed by unfavorable currency impact and a sharp decline in Tamiflu sales. The company also issued a profit and sales growth forecast for fiscal 2012.

The most commonly prescribed anti-viral medication for influenza is Oseltamivir sold under the brand name Tamiflu. In 2009, global sales of Tamiflu rose 400 percent to 3.2 billion Swiss francs, following the pandemic swine flu outbreak. But in 2010, sales of the drug dropped to 873 million Swiss francs. In 2011, Tamiflu sales declined a further 500 million francs.

While on one hand, Tamiflu is stockpiled globally as a defense against pandemic influenza, on the other hand, doubts are being raised over the efficacy of this medical arsenal against flu. The drug has patent protection until 2016.

For the year 2011, Roche's net income increased to 9.54 billion Swiss francs from last year's 8.89 billion francs, mainly due to the good operating performance, lower financing costs and a lower tax rate, the company said.

It noted that the strengthening of the Swiss franc against major currencies had a significant negative impact on the results. Net profit advanced 26 percent on a currency adjusted basis.

Core earnings per share, which excluded certain items, slipped 4 percent to 12.30 francs from 12.78 francs a year earlier, while it rose 11 percent in constant currencies.

Core operating profit increased 6 percent at constant currency rate, significantly faster than sales, the company noted. Core operating margin improved to 35.6 percent from 34.9 percent a year earlier.

For the year, total sales fell 10 percent to 42.53 billion francs from 47.47 billion francs in the year earlier period, while it increased 5 percent in US dollar terms. The company noted that significant foreign exchange negatively impacted sales by 12 percentage points. Sales edged up 1 percent at constant currency rate.

Roche said its underlying growth was able to compensate for the expected decline in Tamiflu and Avastin sales and the impacts of healthcare reforms, austerity measures and price cuts. Excluding Tamiflu, sales increased by 2 percent in constant currencies.

Segment-wise, Pharmaceuticals sales dropped 12 percent, or 10 percent excluding Tamiflu, despite the solid growth of key medicines, including recently launched products. Diagnostics sales grew significantly faster than the in vitro diagnostics market at 6 percent at constant exchange rates, the company said.

Roche CEO Severin Schwan commented, "We achieved our sales and earnings targets for the year and also made significant progress with our pipeline. With 17 positive late-stage clinical trials in 2011, we continue to build our future business with innovative products."

Further, the board proposed a 3 percent increase in dividend for 2011 to 6.80 francs per share and recommended the re-election of Franz Humer, André Hoffmann and Professor Sir John Bell at the Annual General Meeting.

Looking ahead for 2012, Roche targets a high single-digit increase in core earnings per share and low to mid-single-digit sales growth for the Group and the Pharmaceuticals unit - all at constant exchange rates- despite a challenging market environment.

Pharma sales growth would accelerate driven by the strength of its established product portfolio as well as planned new product launches, while Diagnostics Division sales would again outpace the market, the company noted.

Roche also said it will continue its attractive dividend policy.

Regarding its planned acquisition of Illumina, the company said the $44.50 per share deal will strengthen its presence in the fast-growing DNA sequencing market and enable the discovery of complex biomarkers for research and clinical use.

In Zurich, Roche shares closed Tuesday's trading at 155.80 francs, up 0.50 francs or 0.32 percent.

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by RTT Staff Writer

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