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Chemistry at Roche fails to convince investors

Investors were a little shy of Roche's 2004 financial medicine (Roche)

Roche had to swallow a bitter pill on Wednesday, proudly announcing a doubling of net profit that the stock market didn’t think good enough.

The Basel pharmaceuticals and diagnostics company recorded a net income of SFr6.6 billion ($5.53 billion) that sent the share price falling by 4.7 per cent to SFr121.10.

Analysts had expected better figures, with their comments on the Roche performance ranging from “a big disappointment” to “a good opportunity to buy”.

“There was a slight sense of disappointment. Sales were a little bit lower than we expected but I think the underlying growth drivers are still very much in place,” pharmaceuticals analyst Morten Herholdt at Barclays Stockbrokers told swissinfo.

“We were looking for stronger top line growth. It was more of an investment disappointment than an operational disappointment,” he added.

Financial perspective

Herholdt had also been looking for more information on the company’s financial perspective.

“It would have been nice to see some guidance for better margins given that the operational benefit should filter through,” he commented.

The Roche result comes two weeks after cross-town rival Novartis reported net income of $5.8 billion ($6.9 billion) for 2004, driven by a strong all-round operating performance.

But despite the caprices of the stock exchange, both companies forge ahead into 2005 with solid financial figures for last year behind them.

“They are two very strong companies in a global sense and in Europe too obviously,” Herholdt said.

Deliver the goods

Investors seem to have been impressed by the Novartis pipeline of drugs that are expected to come on the market. Roche too was not shy to boast that its pipeline was set to deliver the goods.

“We have a rather full pipeline with 64 new molecular entities, all at various stages of clinical profiling and development, and 34 new indications for established molecules,” Roche Pharmaceuticals CEO William Burns told swissinfo.

“Our challenge is to choose the right winners – clinically – in the race, which can make a difference to the patient and to sales,” he added.

However, for the time being analyst Herholdt seems to give the edge to Novartis.

“If you look at Novartis, we really had strong progress in the pipeline,” he commented.

“There are a few products that are making the market quite excited, whereas the pipeline at Roche is at a slightly later stage in terms of products actually coming to market.”

Consolidation

In an industry that is still in a state of consolidation, there is inevitably speculation about whether the two Basel giants will make acquisitions.

“All [major] pharmaceutical companies, particularly in the current state of the industry, are looking for opportunities elsewhere in the sector and if there’s a viable case, they’ll obviously go and have a look at it,” Herholdt explained.

But Roche chairman and CEO Franz Humer this week ruled out any major acquisition and again quashed the idea of a merger with Novartis, which holds a one-third stake in its rival.

“What really drives business are products and product lines and not infrastructure. Therefore I am less interested in that,” he said.

swissinfo, Robert Brookes in Basel

Key facts

Novartis has a 33.3% stake in Roche and would like to merge with it.
But the families which own the majority of Roche have made it clear that they would reject any overture.

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In brief

Net profit at Roche more than doubled in 2004 to SFr6.6 billion ($5.53 billion)

Rival Novartis reported a 2004 net profit of $5.8 billion (SFr6.9 billion).

Both companies say they have strong pipelines and are positive for the financial year 2005.

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