Roche goes route of reduction

Swiss drugmaker Roche Holding AG says it will review its business and cut costs so that it can cope with recent setbacks regarding key drugs in its pipeline and rising pressures on prices resulting from healthcare reform legislation

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BASEL, Switzerland—Blaming some setbacks with regard to key drugs in its pipeline, and blaming rising pressures on prices as a result of healthcare reforms, Swiss drugmaker Roche Holding AG said Sept. 3 it will review its business and cut costs to compensate. There are as yet, however, no details on how big the cost reductions will be, how many staff will be impacted or how many units will be affected.

"In view of mounting pressures to curb healthcare costs—especially in the United States and Europe—together with recent developments in late-stage projects in the Roche pipeline, this initiative aims to adapt cost structures and accelerate productivity improvements group-wide," Roche officials said in an official statement.

Roche says that detailed plans for its reductions will be announced late this year. But while there may be no numbers yet, the company already has a name for the plan—Operational Excellence—and intends to be carried out that plan in 2011 and 2012.

Although big changes may be on the horizon, for now the company continues to confirm its financial forecast for 2010.

Speed bumps in Roche's pipeline have included delays to T-DM1 for breast cancer medicine and taspoglutide for diabetes treatment. Also of concern is the failure of ocrelizumab in trials for rheumatoid arthritis.

Adding to Roche's woes is the specter that canncer drug Avastin, the company's biggest seller, may lose $1 billion in annual revenue if the U.S. Food and Drug Administration follow a recommendation to revoke approval of the drug for use in breast cancer, noted Tim Anderson, an analyst with Sanford C. Bernstein & Co., in a July report on Roche.

"We have launched this initiative from a position of strength," Roche CEO Severin Schwan said in an official statement. "By contrast with many of our competitors, we are only marginally affected by patent expiries. Furthermore, despite recent setbacks, we have one of the strongest research and development pipelines in the industry."

Reaction to the news was mixed among analysts.

Emmanuel Papadakis, an analyst at Collins Stewart is rating Roche as a "sell," remarking in a note to investors that "Roche has finally bowed to investor pressure and announced a restructuring/operational excellence program, albeit with no numbers. This doesn't change our view, and certainly not until we see some numbers."

Andrew Weiss, an analyst at Bank Vontobel AG, rates Roche as a "buy," and estimated that the company could save between 1 billion and 2 billion Swiss francs.

Roche stock had slipped more than 20 percent so far this year before the announcement, underperforming a 4 percent rise in the sector index.

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