Swiss drugmaker Roche Holding AG raised its full-year earnings target for 2011 on Thursday as cost-cutting protected its first-half profitability from the impact of the strong Swiss franc.
The Basel-based group is now aiming to grow core earnings per share around 10 percent in local currencies this year, after previously guiding for high single-digit growth.
But it stuck to its target of low single-digit sales growth in local currencies as austerity measures on both sides of the Atlantic continue to weigh, while the rallying franc also ate into its top-line in the first six months of the year.
Roche's first-half core earnings per share slipped 4 percent to 6.68 Swiss francs ($8.11), though this was still ahead of the average estimate of 6.48 francs in a Reuters poll.
"All in all, we expect investors will be modestly relieved by these results, which confirm management is meaningfully tackling Roche's cost base," Deutsche Bank analysts said in a note.
"However, this is likely to be at least partly counterbalanced by concerns on the continued underlying slowdown in pharmaceutical sales," the analysts said.
At 1050 GMT, Roche shares were little changed owing to the weaker-than-expected first-half sales. Some analysts also noted that the group's new earnings goal was not very aggressive.
The world's largest maker of cancer drugs is looking to regain investor confidence after a string of product setbacks last year, and some investors are fairly upbeat about its prospects thanks to promising drugs coming down its pipeline.
The group's cost-savings program has also started to pay off more quickly than expected, helping Roche to lift its core operating profit margin to 38.1 percent from 37.2 percent last year.
Roche is on track to shave off 1.8 billion francs in costs this year and to realize annual savings of 2.4 billion francs by the end of 2012, in line with its Operational Excellence program laid out last year.
So far 3,000 jobs have already been axed. Most of these cuts were in the United States and in areas like marketing, Chief Executive Severin Schwan told reporters. The group has said 4,800 jobs will go as part of the savings measures.
Schwan also struck a more optimistic note about the impact austerity measures would have on the group, saying this was likely to level off and have an overall impact of 1 percent on pharma sales in 2011 after 1.5 percent in the first-half of the year.
Roche has been battling lower sales of key cancer drug Avastin after U.S. authorities proposed revoking its approval in advanced breast cancer, and the uncertainty surrounding the treatment has continued to push its sales lower.
But Schwan said he still sees growth potential for the medicine, which is used to treat several different tumor types, adding the group was sticking to its peak sales estimate of 7 billion francs for Avastin.
Roche is now banking on use in ovarian cancer as well as demand from emerging countries to support Avastin after the sales decline accelerated in the second quarter with a 9 percent drop in local currencies to 1.3 billion francs.
The strong franc, which has soared from one record high to another against the euro and the dollar this year, also dented sales more than analysts had anticipated, and group sales slid 12 percent to 21.7 billion francs in the first-half of the year.
"We achieved 7 positive out of 7 late-stage trials in the first half of this year," Schwan said in a statement, and the group is hopeful it will be able to launch its new drug Zelboraf for the deadliest form of skin cancer later this year in the United States.
Investors are now looking forward to more from Roche's pipeline in the second half of the year, and are hopeful that clinical data on breast cancer drugs T-DM1 and pertuzumab will further underscore Roche's position as leader in oncology.
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