Roche's Sales Decline in Q3, But Full-Year Outlook Maintained

Swiss pharma major Roche has closed its books on the third quarter of the year, with a sales dip of 3% year-on-year (y/y) in local currencies, or 7.2% y/y when measured in francs. Total sales from the Roche Group for the third quarter alone stood at 11.5 billion francs (US$12.1 billion). Sales for the January-September period stood at 36.1 billion francs, up 2% y/y in local currencies, but 1% y/y when measured in francs. As expected, reduced sales of Tamiflu (oseltamivir) go a long way to explaining the low growth in Roche's top line. When sales of Tamiflu are excluded from the results, group sales for the first nine months of the year were actually up by 3% in the reporting currency and 6% in local currencies.

Looking at sales within Roche's key divisions—pharmaceuticals and diagnostics—third-quarter sales amounted to just over 9 billion francs and 2.5 billion francs, respectively. Sales growth in diagnostics was flat, and there was a 9.3% y/y drop in pharmaceutical sales. Over the first nine months of the year, growth rates were more encouraging, showing a 1% y/y slip in pharmaceutical sales, with 5% y/y growth in diagnostic sales. In terms of Roche's performance on a regional basis in the third quarter, sales in the United States, Western Europe, and Japan were down 3.7% y/y, 20.9% y/y, and 17.6% y/y, respectively. This downward trend is also mirrored over the first nine months of the year, with sales down 3% y/y in the United States, 9% y/y in Western Europe, and 10% y/y in Japan.

As always, Roche's core oncology portfolio continues to drive pharmaceutical sales with products like Avastin (bevacizumab), MabThera/Rituxan (rituximab), Herceptin (trastuzumab), Xeloda (capecitabine), and Tarceva (erlotinib) reporting strong growth. Avastin and MabThera/Rituxan reported single-digit growth of 7% y/y and 6% y/y respectively in the third quarter, with sales of 1.6 billion francs and 1.5 billion francs. Sales of Herceptin, Xeloda, and Tarceva were up by 8% y/y to 1.4 billion francs, 16% y/y to 361 million francs, and 9% y/y to 331 million francs, respectively. Beyond oncology, other drugs with strong performance include ophthalmology product Lucentis (ranibizumab) with sales of 384 million francs, up 34% y/y, and rheumatoid arthritis drug Actemra/RoActemra with sales of 107 million francs, up 176% y/y.

With the absence of windfall sales from the A/H1N1 influenza (swine flu) pandemic that drove sales of anti-viral drug Tamiflu last year, sales of the drug were down by 90% y/y to 98 million francs. Once the effects of sales of Tamiflu are taken out, pharmaceutical sales were actually up by 2% in the reporting currency and 5% in local currencies, reflecting a healthy pharmaceutical top line.

Outlook and Implications

It is fair to say that Roche has had a challenging year so far. Although the windfall effects of Tamiflu last year compared with the reduced sales of the drug this year explains some of the decline in growth, it is increasingly apparent that the challenging market has taken a toll on the company's top line. Looking ahead, Roche has reiterated that it maintains its full-year outlook of local-currency sales growth in the mid single-digit range for the company as a whole, as well as for the core pharmaceutical business (excluding Tamiflu). The company stopped short of indicating whether it still expects sales growth once Tamiflu sales are included. Diagnostics remains a key area of growth for Roche, as the division continues to outperform the market.

Looking back at the key developments that have occurred during the third quarter and could potentially adversely affect the company's performance going forward, Avastin sits at the top of the list. The drug's future in the breast cancer market still hangs in the balance following the U S. FDA's oncology drug advisory committee's recommendation that the first-line, advanced, HER2-negative breast cancer indication for Avastin should be revoked. Although the FDA has delayed making a final decision on this recommendation, the regulatory uncertainty surrounding Avastin in breast cancer could potentially affect sales of the drug in the U.S. market, and Roche has reported signs of this in the third quarter (see United States: 23 September 2010: Avastin's Clinical Setbacks Persist, FDA Delays Final Decision on Breast Cancer Indication). The European Medicines Agency (EMA) is also reviewing the breast cancer approval for Avastin and paclitaxel or docetaxel combination therapy (see Switzerland: 28 September 2010: EMA to Review Avastin in Breast Cancer). On a more positive note, Avastin continues to perform well in the ovarian cancer setting, with positive results from two Phase III studies that the company has said it will use to initiate regulatory filings. If these filings are successful, Roche could potentially boost sales of the drug by between 500 million francs and 1 billion francs. This may help to mitigate the effects of clinical setbacks in stomach cancer and prostate cancer earlier this year.