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Roche beats expectations by doubling profit

Roche is looking forward to a bumper 2004 profit (Roche)

Basel-based pharmaceuticals group Roche has announced first-half net income of SFr2.83 billion ($2.27 billion), almost double last year’s figure.

Its strong performance matched that of cross-town rival, Novartis, which reported equally healthy results on Tuesday.

Roche, the world’s largest maker of cancer drugs and diagnostics tests, said profit was boosted by one-off financial gains and a 15 per cent rise in prescription drug sales.

“For full-year 2004 Roche expects both its pharmaceuticals and its diagnostics business to grow faster than the global market,” commented chairman and CEO Franz Humer in a statement on Wednesday.

“Moreover, it anticipates a double-digit increase in operating profit and a substantial rise in net income,” he added.

The company reported that operating profit for 2004 would exceed 22 per cent of sales, two year earlier than it had previously forecast.

Roche announced on Monday that it was selling its over-the-counter drugs business to Germany’s Bayer for SFr3.6 billion.

Strong performances

Analyst Denise Anderson at Kepler Equities told swissinfo that Roche had put in a good performance during the first half of the year.

“We had pharmaceutical growth remaining well above the market average… Diagnostics also outgrew the market, so both divisions are performing strongly,” she said.

“The other news story is the margins side. Roche has systematically been improving the margins over the past few years and, frankly, the result was very dramatic in the first half of the year,” she added.

Novartis, which has a one-third stake in Roche, announced on Tuesday that its first-half net income rose by 19 per cent to $2.8 billion (SFr3.44 billion). It also reported market share gains.

Who is performing better?

Looking at this week’s figures for Roche and Novartis, Anderson said it was difficult to decide who was performing better.

“It is always the eternal question in Switzerland… If you look at sales growth you could say Roche is doing better because they had 16 per cent local currency pharmaceutical growth, whereas Novartis had only 11 per cent,” she said.

She added that in terms of their respective drugs pipelines, Roche looked the better short-term bet, whereas Novartis might have the edge later on.

“Right now we pick Roche as our top stock in a one-year time frame. But these stocks are the only two 'buys' we have in blue chips in the European pharmaceutical sector. It’s hard for us to pick which one is better.”

In terms of share price over the past year, Roche has clearly outperformed its neighbour, with its stock rising by about 15 per cent compared with Novartis’s 7.5 per cent.

Part of this is down to investors’ fears that Novartis might make a major acquisition, which could dilute the share price.

But Novartis has repeatedly said it is in no hurry to dip into its $8 billion cash mountain.

Vasella and Humer

Novartis chairman and CEO Daniel Vasella is considered more adventurous when it comes to major acquisitions than Roche’s Humer, who sees them as a hindrance to research.

There is also a sense of déjà vu among investors when it comes to Novartis, which has gone from strength to strength since the 1996 merger of Ciba and Sandoz.

“The irony is that if you’re a company that does consistently well, investors expect that of you and this is reflected in the share price,” said Anderson.

“With Roche, in contrast, the company disappointed investors for a long time. Then when it hit rock bottom last year and finally started coming through with its promises, growing sales and improving the margins, the market said this was something new and paid up for that.”

swissinfo, Robert Brookes

Key facts

Roche is concentrating its business on pharmaceuticals and diagnostics.
Its major drugs include blood cancer treatment Mabthera and the hepatitis C drug Pegasys.
Roche has repeatedly rejected overtures from Novartis to merge.

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In brief

Roche has beaten forecasts with a first-half net income of SFr2.83 million ($2.27 billion). Total sales were SFr15.4 billion.

Operating profit and margins in core businesses increased significantly. It reduced debt by SFr4.1 billion.

Roche expects a “substantial rise” in net profit for the year as a whole.

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