February 1, 2017 / 6:27 AM / 3 years ago

Competition stalls Roche margin growth; drugmaker commits to diabetes unit

ZURICH (Reuters) - Roche on Wednesday said competition and spending on new drugs would likely stall its margin growth in 2017 as the Swiss drugmaker grapples with patent expirations of some blockbuster medicines that will expose them to competition.

Roche Diagnostics CEO Roland Diggelmann attends a news conference in Basel, Switzerland February 1, 2017. REUTERS/Ruben Sprich

The Swiss drugmaker also dismissed speculation it was looking to unload its diabetes care unit, saying it was “committed” to the business.

Core earnings per share this year are now forecast to grow broadly in line with a low- to mid-single-digit sales rise, the company said.

That contrasts with 2016 when core earnings per share rose 5 percent to 14.53 Swiss francs ($14.66), while sales grew 4 percent in constant currencies to 50.6 billion francs.

The drugmaker’s three cancer blockbusters Rituxan, Herceptin and Avastin, which account for annual sales of more than 20 billion Swiss francs, face impending competition from so-called biosimilar copies.

The first copies of Rituxan and Herceptin could arrive in Europe later this year.

Consequently, Chief Executive Officer Severin Schwan said he has dialed back 2017 profit growth expectations on the grounds that he must invest in new products including cancer immunotherapy Tecentriq, Cotellic for skin cancer and lung cancer drug Alecensa to fill the void.

“We’re going through a transition of our portfolio but the good news is, we can overcompensate with the launch of new medicines,” Schwan said on a conference call.

Roche shares were up less than 1 percent at 0840 GMT (03:40 a.m. ET).

Analysts noted this was the first time in three years that Schwan, an Austrian who has led Roche since 2008, has not made a more bullish prediction for margin expansion.

“Biosimilars will hit Roche in the current year in Europe and then in 2018 in America in a big way, putting Roche under pressure to keep up new pipeline news and successful drug launches,” Michael Nawrath, a Zuercher Kantonalbank analyst, wrote in a note to investors.

Schwan played down the threat posed by U.S. President Donald Trump’s call for drugmakers to cut prices and invest more in the United States, arguing that innovative companies would still be rewarded and pointing out Roche’s big U.S. presence via its Genentech unit.

Core net income in 2016 rose to 12.7 billion francs, Roche said, compared with the 12.8 billion franc average estimate by analysts in a Reuters poll.

Roche proposed raising its dividend to 8.20 francs per share, below the 8.45 franc average estimate in the poll.

Sales of Tecentriq, Cotellic and Alecensa added 400 million Swiss francs to sales, and Schwan expects that figure to grow significantly.

DIABETES COMMITMENT

He anticipates Ocrevus, Roche’s new multiple sclerosis medicine, to be approved by the U.S. Food and Drug Administration in March after it was delayed from December. First sales are set for April.

Overall, Roche reported that sales in its main drugs business rose 3 percent to 39.1 billion francs, while diagnostics sales added 7 percent to 11.5 billion francs.

Slideshow (6 Images)

Roche’s diabetes care business, part of the diagnostics unit, continued to face price pressure, especially in the United States. Still, Schwan remains committed to the business.

“We are well positioned in this segment, where we are the market leader,” Schwan said. “It’s a difficult situation we are going through but we remain committed to this business.”

($1 = 0.9903 Swiss francs)

Additional reporting by Ben Hirschler; Editing by Michael Shields and Louise Heavens

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