Roche Earnings Stagnate for First Time in Three Years on Costs
Earnings per share excluding some items were little changed at 14.29 francs in 2014, Basel, Switzerland-based Roche said in a statement today. That’s below the 14.71-franc average of 24 analyst estimates compiled by Bloomberg. Excluding currency shifts, adjusted EPS of the world’s biggest seller of cancer drugs would have gained 5 percent. The stock fell as much as 4.1 percent.
The drugmaker has recently faced setbacks including a failed study on combining two of its newer drugs, Kadcyla and Perjeta, to treat breast cancer, and poor results for the experimental Alzheimer’s medicine gantenerumab. Even so, it has promising new drug candidates for leukemia, hemophilia A and lung cancer.
“I’m definitely more concerned on Roche than what I was before, especially when I look at some of the failures they had in 2014,” Odile Rundquist, an analyst at Baader-Helvea in Geneva, said by phone. “They really need to strengthen the top line because we know the oncology market will become more and more competitive.”
The shares traded 2.1 percent lower at 252 francs as of 10:54 a.m. in Zurich. The stock has declined 6.6 percent including reinvested dividends since the end of 2014, compared with an 11 percent return for the Bloomberg Europe Pharmaceutical Index.
Franc Surprise
While the surprise decision by Switzerland’s central bank on Jan. 15 to end the cap on the franc will weigh on profit, Roche has no plans to move operations outside the country to reduce the impact, Chief Executive Officer Severin Schwan said on a call with reporters. He said the SNB made a “correct” decision.
The report is “hardly one for the history books,” analysts led by Michael Leuchten at Barclays Plc, wrote in a note. “This is a less inspiring set of results than we have seen from Roche in the past.”
A double-booking of a fee imposed on drugmakers as part of the U.S. health-care reforms contributed to the company missing analysts’ estimates, Schwan said. In 2014, the Internal Revenue Service required drugmakers to record an advance payment for 2015 as well as what they owed for 2014, Roche said.
Marketing costs for the introduction of Esbriet, a lung disease drug, also probably weighed on the results, according to Alistair Campbell, an analyst at Berenberg.
Swiss Costs
“We’ve always had a higher cost base here in Switzerland,” the CEO told reporters, adding that the company has about 82 percent of its costs outside the country. “We will continue what we have always done, working on our productivity. I continue to believe that Switzerland and Basel offer a very good framework for our business.”
The strength of the franc contributed to a 1 percent decline in core operating profit last year, stripping out 4 percentage points of growth, Roche indicated. Chairman Christoph Franz said last week the currency impact is “largely mitigated” and finding the best scientists is a harder task than dealing with the exchange rate.
Sales excluding currency swings will increase by a “low to mid-single digit” percentage, helped by new medicines, and core earnings per share growth will exceed that, Roche forecast, maintaining the outlook of past years.
The forecasts are a “little disappointing,” Berenberg’s Campbell wrote, saying he expected Roche to commit to a mid-single digit range.
Flu Season
Sales climbed 1 percent last year to 47.5 billion francs, beating the average estimate of 47.1 billion francs. Revenue from the flu antiviral Tamiflu jumped 54 percent, boosted by U.S. demand.
Roche proposed raising the dividend by 3 percent to 8 francs a share, its 28th consecutive annual increase.
While Roche is best known for cancer drugs such as Avastin and Herceptin, the company is expanding in other disease areas such as Alzheimer’s and has said it’s seeking more acquisitions to fill gaps in its portfolio.