Roche sails back into the black

After a difficult 2002, Roche returned to form last year. Roche

The pharmaceutical group, Roche, has recorded a strong financial performance in 2003, swinging to a net profit of SFr3 billion ($2.48 billion) from a SFr4 billion loss the year before.

The company said its growth had “significantly” outpaced the global market, with total sales up by six per cent to SFr31.2 billion.

And Roche said it expected to grow faster than its peers again this year.

“We are pleased to report that we achieved our ambitious goals in 2003. Together our core pharmaceuticals and diagnostics businesses posted double-digit sales growth of 19 per cent in local currencies, and both grew faster than their respective markets,” commented chairman and CEO Franz Humer.

“Operating profit before exceptional items again grew faster than sales. It rose by 25 per cent in local currencies to SFr6.1 billion. In addition, we strengthened Roche’s financial position further and continued to enhance corporate governance,” he added.

Sales growth

The negative impact of the Swiss franc strength against the dollar was offset by sales growth by Roche, its US biotech arm Genentech and Japan’s Chugai pharmaceutical company.

The healthcare group said in a statement from its Basel headquarters that flagship pharmaceutical sales rose by 14 per cent in Swiss francs to SFr21.55 billion.

Even without the newly integrated Chugai of Japan, sales grew faster than the global market, with new and established Roche products accounting for over half of the gains.

Sales of prescription medicines in 2003 totalled SFr19.78 billion, some 14 per cent up on the previous year. Turnover in North America increased by 20 per cent, significantly outpacing the market, while in Europe sales accelerated in the double-digit range.

The group is the world’s leading maker of cancer medicines but is also receiving a boost for sales of drugs to treat hepatitis, anaemia and transplant patients.

Analyst Denise Anderson at Kepler Equities told swissinfo that the Roche figures were much as the market had been expecting.

“The figures were in general in line with expectations. The one exception was the net income, which was slightly below forecasts, although when we look closely, that’s just due to financial income,” she commented.

“As you may know, Roche is trying to reorder its financial income to make it less volatile and more easy to predict, but unfortunately in the transition phase it becomes a little less easy to predict… so in general we would say the results on an operating level were in line,” she added.

Research and development

Roche commented that its research and development pipeline was “very strong”, with the quality of the portfolio steadily increasing over the past three years.

The group said it was currently pursuing 125 research projects spanning seven therapeutic areas and 60 development projects in ten therapeutic areas.

Roche said it had extended its market leadership in the diagnostics area, with sales up three per cent to SFr7.4 billion. It commented that it had recorded significant sales gains in all regions, despite weak or negative growth in the world’s major diagnostics markets.

In its outlook, the company said that the pharmaceuticals division remained committed to achieving an operating profit margin approaching 26 per cent before exceptional items by the end of 2004.

The diagnostics division was expected to achieve its aim of an operating profit of around 23 per cent before exceptional items in 2006.

Based on the strong gains in operating result and net income, the board of directors is proposing to approve a dividend increase of 14 per cent to SFr1.65 per share and non-voting equity security.

This is the 17th dividend increase in as many years.

Strategy

“The good results achieved in 2003 confirm that our clear strategy of focus and innovation is on track and being successfully implemented,” Humer commented.

Roche, which is controlled by the heirs of its founder, has been under pressure to perform after rejecting advances by cross-town rival Novartis, which has built up a 33.3 per cent voting stake in Roche.

However analyst Anderson said she did not think that rivalry with Novartis had shaken up Roche to perform better over the recent past.

“As you know, it takes a long time to change things around for pharmaceutical companies. You can’t just all of a sudden, when you need it, pull a new drug out of the hat. You actually have had to start working on it ten years or more in the past,” she explained.

“I wouldn’t attribute that to Novartis. I would just attribute that to the pipeline coming through in the end for the company,” she added.

swissinfo, Robert Brookes

Key facts

Along with its financial figures, Roche published its first separate sustainability report, commenting that this underscored its commitment as a “good corporate citizen”.
The board of directors will nominate Bruno Gehrig, chairman of Swiss Life, and Lodewijk de Vink, for election by the annual shareholders’ meeting.
Fritz Gerber, Andres Leuenberger and Henri Meier are stepping down from the board as previously announced.
The board said the proposed changes mean that the majority of its members will be independent directors.
Other improvements to corporate governance at Roche include changes that help comparison of the financial results with those of other healthcare companies.

In brief

Roche made a net profit of SFr3.1 billion in 2003, after recording a loss of SFr4 billion the year before.

The group said it had performed much better last year than its industry peers.

And it commented that it expected to do better again this year.

Operating profit of core businesses before exceptional items rose to SFr6.1 billion.

The company recorded a robust cash flow of SFr8.4 billion from its core businesses.

Rivals Novartis announced last month a 2003 net profit of $5 billion.