Swiss healthcare giants surge on drug sales

Drug sales are booming for Roche and Novartis Keystone Archive

A flurry of positive results from Switzerland’s pharmaceutical giants, Novartis and Roche, underlines a new confidence within the industry.

The Basel-based rivals this week posted solid first half profits, as well as up-beat assessments of the next 12 to 18 months.

The bullish outlook contrasts with the uncertainty that continues to plague the Swiss economy in general.

As prominent pillars of Switzerland’s corporate world, the two firms are among the country’s most closely watched, and have to live up to high expectations.

Both are global players, employing over 130,000 people, generating SFr62 billion ($46 billion) in joint sales and enjoying a combined market capitalisation of SFr252 billion.

“At the moment, Roche can certainly be described as the more dynamic,” Martin Flückiger, a pharmaceuticals analyst at Bank Leu told swissinfo.

On Wednesday, Roche announced a 24 per cent fall in first half net profit to SFr1.6 billion ($1.16 billion).

On Friday the company followed up with the news that it was buying the United States diagnostics company Igen International for $1.4 billion, ending a long-standing licensing dispute between the two concerns.

Although Novartis generated a much larger first-half profit of $2.38 billion (SFr3.24 billion), Roche has enjoyed greater sales growth of close to 20 per cent (albeit measured in US dollar terms).

From the ashes

Flückiger said Roche’s latest financial results are evidence that the firm had emerged “phoenix like from the ashes” after a difficult year.

Six months ago, few analysts would have bet on Roche performing as well as it has.

In 2002, the normally reliable Roche struck serious trouble. The 107 year-old firm recorded its worst ever result – a massive SFr4 billion loss.

Ironically, the big loss had little to do with selling drugs.

Famous for developing blockbusters such as Valium, in recent years Roche has made up to a third of its annual profit from stock investments.

But the ongoing downturn in global equity markets meant Roche was forced to write off billions in collapsed share investments.

This year has been no different, although not as bad. In the first half of 2003, Roche recorded SFr277 million in stock losses.

Novartis tops

By contrast, Novartis was one of the few big Swiss companies to get through the past two years relatively unscathed.

Last year it recorded a net income of SFr7.3 billion, and saw its chairman and chief executive, Daniel Vasella, lauded in the financial media as one of the world’s best-performing corporate leaders.

But while Novartis has been winning laurels during the past six months, Roche has been quietly focussing on what it does best – selling drugs and diagnostics equipment.

William Burns, head of Roche’s Pharmaceuticals division, told swissinfo the company would continue to enjoy double-digit sales growth for the rest of this year.

“Were building on a very successful six months,” Burns said.

“We want to increase the availability of three products that prolong life expectancy for cancer patients. Those will be drivers for growth in our development portfolio,” he added.

Roche is banking heavily on the future success of potential blockbusters such as its recently approved hepatitis treatment, Pegasys, and a new HIV drug, Fuzeon.

In addition, its new cancer treatment, MabThera, could one day earn the company up to SFr4.5 billion a year.

In the pipeline

Burns is also confident that Roche’s development pipeline will continue to generate marketable drugs.

Some analysts believe Avastin, a promising cancer treatment currently being tested, could one day be worth several billion dollars a year.

“Certainly you can come up with some rather exotic figures where they assume pricing and how many cancers you can treat with the drug,” Burns said.

“But if you’re more humble and think only of rectal cancer, there is probably a billion dollar product in there, given the profound benefit it brings.”

Flückiger said Roche was also doing a better job of specialising than its rival.

“Whereas Novartis has concentrated itself on drugs for general medicine, Roche is specialised in oncology (cancer), transplantation and virology (hepatitis and HIV),” Flückiger said.

Merger dreams

The two companies, linked through geography, history and their importance to the Swiss economy, remain the subjects of ongoing take-over speculation.

Vasella has repeatedly called for a merger, something that is unlikely to happen while the descendents of Roche’s original founders maintain their controlling stake in the firm.

Novartis said it could have enjoyed an even bigger first-half profit, were it not for the underperformance of its 20 per cent stake in Roche.

By contrast, Roche CEO Franz Humer said the latest financial results confirmed that Roche was capable of succeeding on its own.

swissinfo, Jacob Greber in Zurich

Key facts

Roche and Novartis have a market capitalisation of SFr252 billion ($187 billion).
They employ 130,000 people worldwide.
In 2002, the two rivals generated SFr62 billion in combined sales.
Roche’s 2003 first-half profit fell 24 per cent to SFr1.6 billion.
Novartis made a net profit of $2.38 billion (SFr3.24 billion)in the first six months of this year.