Drug giants battle for supremacy
Swiss pharma giant Roche has healthy annual results and a growth forecast that outstrips rival Novartis but the latter could still outperform the former.
Thanks to a stronger pipeline and greater activity in the generics market, Novartis could outshine Roche in 2007, Birgit Kulhoff, a healthcare analyst with Rahn & Bodmer bank, tells swissinfo.
Roche reported record sales and operating growth on Wednesday with pharmaceutical sales increasing four times faster than the global market thanks to the success of cancer treatments and demand for anti-flu drug Tamiflu.
Novartis also posted strong profits for 2005 last month but disappointed analysts with a conservative growth forecast for this year.
Kulhoff believes, however, that Novartis has a better long-term strategy that could reap rewards from 2007.
swissinfo: How do you rate the performance of Roche and Novartis?
Birgit Kulhoff: Roche had better top-line growth in 2005 so momentum is definitely going for them for the time being.
Most of their growth is in the oncology sector that has a better pricing environment than so-called general practitioner drugs, which is the area that Novartis is most exposed.
But, going forward to 2007, the momentum could shift to Novartis. They have a major launch activity that looks very promising and in the long term we expect generics [copies of patent-expired drugs] to gain a greater market share.
swissinfo: How strong are they in global terms?
B.K.: Both companies are outperforming the global pharmaceutical market and should continue to do so.
Most pharma companies in the United States in the next year or two will be hit by patent expiries and generic competition that means their pricing will also come under more pressure. European pharma companies in general will have a much better standing this year than US ones.
swissinfo: What are your predictions for the future strategies of the two companies?
B.K.: I would expect Novartis to make further acquisitions of products or companies with a decent pipeline but not Serono [which is on the market].
Roche was very active in the past with takeovers but now has a different strategy. They now tend not to go for a 100 per cent takeover but for a majority stake.
Both companies must do something with their free cash flow in terms of clever acquisitions that add to their attractiveness for shareholders.
swissinfo: Are the two firms driven by the competition with each other?
B.K.: The simple fact that they are both situated in Basel certainly means that they are competitors. But if you look at the markets and products they are in, then they are less competitive than you would imagine.
Obviously they are vying for the same kind of shareholders, so they have always been perceived by investors as competitors. But, in theory, they are not.
swissinfo: What are the greatest challenges facing both companies in future?
B.K.: The challenge for all pharmaceuticals is to keep their pipeline well filled as you can only grow if you have new products coming on the market.
On the regulatory side, they must work with governments and healthcare authorities to keep pricing under control.
swissinfo-interview: Matthew Allen
Novartis 2005 results released January 19:
Group net sales: $32.2 billion (+14%)
Pharmaceutical net sales: $20.3 billion (+10%)
Sandoz net sales: $4.7 billion (+54%)
Consumer Health net sales: $7.3 billion (+8%)
Roche 2005 results announced on February 1:
Sales: SFr35.511 billion (+20% in Swiss francs)
Operating profit: SFr9.025 billion (+ 33%)
Net profit: SFr6.730 billion (- 5%)
Roche group is the number one in the global diagnostics markets and is a leading supplier of medicines for cancer and transplantation.
Novartis is the world's biggest producer of generic drugs and the second largest producer of over-the-counter drugs in Europe.
Novartis has just under a one-third stake of voting shares in Roche, but Roche's founding family has consistently rejected proposals from Novartis CEO and chairman Daniel Vasella for a merger.
In compliance with the JTI standards
More: SWI swissinfo.ch certified by the Journalism Trust Initiative
Contributions under this article have been turned off. You can find an overview of ongoing debates with our journalists here. Please join us!
If you want to start a conversation about a topic raised in this article or want to report factual errors, email us at email@example.com.