Investor Update
Basel, 20 July 2006
Roche
in the first half of 2006: Outstanding growth
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Investor Update as PDF
Group
•
Group sales advance 16% to 20 billion Swiss francs, for a record half-year increase of 3 billion Swiss
francs
• Operating profit margin rises 2.4 percentage points to 29.2%
•
Net income increases 37% in Swiss francs to 4.5 billion Swiss francs thanks to strong operating performance
and higher net financial income
Pharmaceuticals
•
Pharmaceutical sales grow 19%, more than three times as fast as the global market
• Cancer
medicines deliver 48% growth, reinforcing Roche’s leadership in oncology
• Operating
profit margin rises 3.4 percentage points to 32.2%
• Marketing approvals received for
Herceptin in early-stage breast cancer and for MabThera in rheumatoid arthritis
• Mircera
filed for the treatment of renal anemia
• Thirteen additional alliances signed, including
agreements to co-develop three new research compounds from Chugai
Diagnostics
•
Roche Diagnostics posts 4% rise in sales; growth accelerates in second quarter
• As anticipated,
investments in ongoing product launches and lower royalty income result in a decline in operating profit
•
Renewed Accu-Chek diabetes care portfolio experiencing strong uptake
Outlook
for 2006
• Above-market sales growth, with double-digit increases for the Roche
Group and the Pharmaceuticals Division
• Target is for core earnings per share to grow
ahead of sales
Unless otherwise stated, all growth rates are in local currencies / operating profit margins are stated before exceptional items
Commenting on the Group’s performance in the first half of 2006, Roche Chairman and CEO Franz B. Humer said: ‘Roche turned in another outstanding performance in the first half of 2006. Group sales rose 16% in local currencies — an impressive increase for any healthcare company — resulting in market share gains and a further improvement in earnings performance. Sales revenues grew organically by over 3 billion Swiss francs, driven primarily by our leading oncology products, the influenza medicine Tamiflu and our diagnostic brands. We are developing many of our marketed products for additional indications that will help fuel future growth for the Roche Group.’
Roche Group
Organic sales growth tops 3 billion Swiss francs
Key figures in millions of CHF
First half | First half | % change | % change |
|
2006 | 2005 | in CHF | in local cur. |
|
Sales | 19,849 | 16,622 | +19 | +16 |
EBITDAa) | 7,061 | 5,592 | +26 | +23 |
Operating profit before exceptional items | 5,805 | 4,454 | +30 | +27 |
Net income | 4,543 | 3,328 | +37 | - |
Core EPSb) (in CHF) | 4.90 | 3.80 | +29 | - |
Employees (in full-time equivalents) | 70,520 | 67,807c) | +4 | - |
a)
EBITDA: Earnings before exceptional items and before financial income, financing costs, tax, depreciation
and amortisation, including impairment. This corresponds to operating profit before exceptional items
and before depreciation and amortisation, including impairment
b) Core earnings per share
and non-voting equity security (diluted) is calculated as shown on p. 48 of Roche’s 2006 Half-Year Report
c)
Employees 2005 as per 31 December 2005
Operationally and financially, the Roche Group had an outstanding first half-year. During the first six months of 2006 Group sales increased significantly, advancing 16% in local currencies (19% in Swiss francs) to 19.8 billion Swiss francs. Organic sales growth for the period totalled 3.2 billion Swiss francs. The Pharmaceuticals Division was the main growth driver. Its sales rose 19% in local currencies (23% in Swiss francs), over three times the global market, thanks primarily to continued strong demand for the anticancer medicines Herceptin, Avastin and MabThera/Rituxan and for the influenza medicine Tamiflu. In the Diagnostics Division interim sales showed a 4% increase in local currencies (8% in Swiss francs), with all business areas contributing to growth.
This strong top-line growth had a very positive impact on the Group’s earnings performance. Operating profit before exceptional items rose 27% in local currencies to 5.8 billion Swiss francs. The corresponding operating profit margin improved significantly, increasing 2.4 percentage points to 29.2%, with sustained, robust sales growth more than offsetting increased investment in Roche’s highly promising development pipeline and in new product launches.
Improved operating margins for the Group and Pharma
The Group’s improved earnings performance was due primarily to the significantly higher operating profit recorded by the Pharmaceuticals Division. Its operating profit before exceptional items increased 35% in local currencies (38% in Swiss francs) to 5.0 billion Swiss francs, raising the division’s operating profit margin 3.4 percentage points to 32.2%. In the Diagnostics Division, as anticipated, interim operating profit before exceptional items was down by 7% in local currencies to 910 million Swiss francs. This resulted in a margin decrease of 2.5 percentage points, to 21.3%. Investment spending on the roll-out of new products and a decrease in royalty income were the main reasons for the lower operating profit figure.
Net income up by more than a third
The Group’s strong earnings performance is also reflected by other key indicators. EBITDA, for example, rose 23% in local currencies to 7.1 billion Swiss francs, and cash flow from operating activities (before taxes) reached 5.7 billion Swiss francs. Net financial income totalled 424 million Swiss francs, a significant improvement over the first half of 2005. The Group’s effective tax rate rose 3 percentage points, to 27.3%, primarily as a result of a higher effective tax rate at Genentech. Net income increased substantially in the first six months, advancing 37% to 4.5 billion Swiss francs. The Group further strengthened its balance sheet. The ratio of equity to total assets is now 61%, and 87% of total assets are financed long term.
Outlook
Barring unforeseen events, Roche expects full-year sales and income for 2006 to be up significantly from 2005. The Group reaffirms the sales outlook announced at its annual media conference and increases the target on core earnings per share and non-voting equity security (core EPS): Sales in both the Pharmaceuticals and the Diagnostics Division are expected to grow ahead of the market in local currencies, with a continuing acceleration of Diagnostics’ sales in the second half and continued double-digit growth for the Pharmaceuticals Division and the Group as a whole. The target is now for core EPS to grow above sales.
Pharmaceuticals Division
Growth continues to significantly outpace market
Key figures | In millions of CHF | % change in CHF | % change in local currencies | As % of sales |
Sales | 15,577 | 23 | 19 | 100 |
- Roche Pharmaceuticals | 9,670 | 21 | 17 | 62 |
- Genentech | 4,223 | 47 | 39 | 27 |
- Chugai | 1,684 | -7 | -4 | 11 |
EBITDA | 5,847 | 34 | 31 | 37.5 |
Operating profit before exceptional items | 5,016 | 38 | 35 | 32.2 |
Research and development | 2,736 | 24 | 21 | 17.6 |
The Pharmaceuticals Division again posted very strong growth in the first half of 2006, with sales rising 19% in local currencies (23% in Swiss francs), or more than three times the global market growth rate (5%). Growth was driven primarily by strong demand for the division’s oncology products, continued pandemic stockpiling of the influenza medicine Tamiflu, and sales of Bonviva/Boniva, for osteoporosis.
Sales gains outpaced market growth almost fourfold in North America (23% vs 6%) and more than fourfold in Europe (23% vs 5%). In Japan sales declined 4% (vs a –1% market average), due mainly to significant government-mandated pharmaceutical price cuts and seasonal shifts in sales of Tamiflu compared with the prior-year period.
Divisional operating profit before exceptional items advanced significantly, rising 35% in local currencies to 5.0 billion Swiss francs, and the operating profit margin on the same basis improved by 3.4 percentage points to 32.2%.
Oncology — Roche extends leadership further
The division’s oncology portfolio delivered first-half sales growth of 48%. All major brands contributed to this performance, which further consolidates Roche’s position as the world’s leading provider of cancer medicines.
Sales of MabThera/Rituxan for non-Hodgkin’s lymphoma (NHL) continued to advance strongly in the first half of 2006. Growth was driven primarily by increasing use of the product in the first-line treatment of indolent NHL and aggressive NHL in Europe and in emerging markets such as Russia and China, while market penetration in the US remained high. In June and July, respectively, the Swiss and EU authorities approved MabThera as maintenance therapy in patients with relapsed or refractory follicular NHL, based on clinical data showing that the product reduces the risk of death by almost half compared with standard disease management.
Worldwide sales of Herceptin, for HER2-positive breast cancer, more than doubled compared with the first half of 2005. Strong growth in the US and Europe was driven predominantly by uptake of the product in early-stage HER2-positive breast cancer. This indication was approved in the EU in May and is currently undergoing priority review in the US. Follow-up data from the large-scale HERA trial, presented at the 2006 meeting of the American Society of Clinical Oncology (ASCO) in June, showed that Herceptin given after standard chemotherapy reduces the risk of death by 34% in patients with early breast cancer.
Avastin, for colorectal cancer, posted impressive 119% sales growth, driven by strong demand in the US and across Europe. Avastin is the first and only anti-angiogenic agent that has been shown to improve patient survival in three major cancers: colorectal, non-small cell lung (NSCLC) and breast cancer. In June the FDA approved an application to expand the product’s label to include second-line treatment of metastatic colorectal cancer. Following a filing in April for non-squamous NSCLC, the most common form of lung cancer, Genentech filed a further application with the FDA in May for first-line use in advanced breast cancer. Roche applied in the EU for approval of this indication in July and is preparing to file further applications in the second half of 2006 for advanced lung cancer and to broaden the medicine’s current labelling for advanced colorectal cancer. In April Chugai filed the first marketing application in Japan for Avastin, for the treatment of advanced or recurrent colorectal cancer.
Strong first-half growth in sales of Xeloda was driven mainly by increased market penetration in the adjuvant colon cancer setting (after surgery). Over 1 million patients have now benefited from treatment with this innovative oral anticancer agent. An EU filing for stomach cancer is planned for the second half of 2006. The results of a clinical trial of Xeloda in combination with oxaliplatin and Avastin in colon cancer are expected later this year and could eventually lead to further regulatory filings.
Sales of Tarceva, a novel targeted treatment shown to extend the lives of patients with advanced lung and pancreatic cancer, continued to grow strongly. Tarceva is approved for the treatment of lung cancer in the EU, the US and many other countries. Following approval in the US late last year for advanced pancreatic cancer, the product is currently being reviewed by EU regulators for the same indication. In April Chugai filed in Japan for approval of Tarceva to treat advanced or recurrent NSCLC.
Anemia — healthy growth in a highly competitive market
Combined sales of Roche’s NeoRecormon and Chugai’s Epogin grew slightly in the first half-year. NeoRecormon again recorded good sales growth in a highly competitive market, maintaining its long-standing overall market leadership for the treatment of renal and cancer-related anemia in the regions where it is sold. Sales of NeoRecormon in cancer-related anemia continued to outgrow the market. In Japan, where Epogin remains the market leader in the renal anemia segment, sales revenues declined 6% due to government-mandated price cuts and reimbursement changes that resulted in a contraction of the overall anemia market.
Transplantation medicine — CellCept remains the leader
CellCept, a leading immunosuppressant worldwide for the prevention of transplant rejection, continued its solid overall sales growth. Combined sales of Valcyte and Cymevene, for prevention of dangerous cytomegalovirus infections, showed strong growth worldwide, advancing 16% to 223 million Swiss francs.
Virology — Tamiflu sales continue to grow strongly
Sales of Tamiflu grew 62%, driven by pandemic orders and seasonal sales. Due to an early flu season in Japan, the majority of seasonal sales in that market occurred in the fourth quarter of 2005, resulting in lower sales in the first half of 2006 than in the prior-year period. Roche continues to expand efforts to increase and speed up availability of the medicine for influenza pandemic planning worldwide. In May Roche signed an agreement with the South African company Aspen to provide technical know-how for the production of a generic version of oseltamivir for pandemic use in Africa.
Sales of the HIV medicine Fuzeon showed a healthy 19% gain to 143 million Swiss francs, with good growth in all marketing regions.
Sales of Pegasys grew slightly in the first half-year, with the product maintaining its position as the world’s leading treatment for chronic hepatitis C. Copegus (ribavirin) sales declined significantly as a result of generic erosion, particularly in the US.
Rheumatoid arthritis — market launches in US and Europe
Following FDA approval for MabThera/Rituxan in rheumatoid arthritis (RA) in February and its rapid launch in this new indication by Genentech, early acceptance in the US has been very encouraging. Roche received EU marketing authorisation in July and European launches of MabThera in RA have commenced. MabThera/Rituxan provides lasting clinical benefits when patients are treated with repeated courses of only two infusions every six to twelve months. Strong radiographic data showing that MabThera can significantly inhibit joint damage in RA were presented at the Annual European Congress of Rheumatology (EULAR) in June.
Primary care — Bonviva/Boniva on track
Sales of once-monthly oral Bonviva/Boniva, for osteoporosis, increased to 167 million Swiss francs in the first half of 2006, with the product’s share of the US bisphosphonate market advancing to over 10%. Roche and its co-development partner GlaxoSmithKline have now launched the product in 42 countries worldwide. Launches in additional European markets are planned over the next few months. Following US approval and launch in January, Bonviva/Boniva Injection was approved in the EU in March. Given only once every three months, this new dosage form offers effective treatment to women unable to take or tolerate oral bisphosphonates.
Xenical, for weight loss, showed double-digit growth. In January an FDA advisory committee recommended approval of orlistat 60 mg capsules as an over-the-counter medicine for weight loss in the US. Subject to final FDA approval, our co-marketing partner GlaxoSmithKline Consumer Healthcare plans to market the OTC product under the brand name Alli.
Major development activities — Mircera filed for approval in US and Europe
At the end of June 2006 the Pharmaceuticals Division’s R&D pipeline comprised 112 projects, including 57 new molecular entities and 55 additional indications. The Division currently has 36 projects in phase III development and ten projects in the registration phase. Nine major marketing applications were approved by US or EU regulators from January to early July 2006. Roche Pharmaceuticals plans to file five major new indications in the second half of this year.
In the first half-year Roche filed marketing applications with the regulatory authorities in the US and the EU for Mircera (formerly C.E.R.A.) in its first indication, the treatment of renal anemia in patients on dialysis and not on dialysis. Mircera, the first of a new class of continuous erythropoietin receptor activators, has been studied using a two-week dosing interval for correction of anemia in untreated patients and using a once-monthly regimen for maintenance treatment. Clinical development of Mircera in cancer-related anemia is proceeding as planned.
MabThera/Rituxan is currently being tested in patients with earlier stages of rheumatoid arthritis in an extensive development programme consisting of four phase III clinical trials. In April, based on excellent phase III data, Chugai filed applications with the Japanese health authorities to expand marketing approval of Actemra to include the treatment of adult RA and systemic onset juvenile idiopathic arthritis.
In the first six months of 2006 Roche further strengthened its R&D pipeline with thirteen partnering transactions. Among these are three promising compounds currently in preclinical research at Chugai — two in oncology and one in diabetes.
Diagnostics Division
On track for above-market growth
Key figures | In millions of CHF | % change in CHF | % change in local currencies | As % of sales |
Sales | 4,272 | 8 | 4 | 100 |
- Diabetes Care | 1,428 | 4 | 1 | 34 |
- Centralized Diagnostics | 1,535 | 7 | 4 | 36 |
- Molecular Diagnostics | 609 | 10 | 6 | 14 |
- Near Patient Testing | 393 | 15 | 11 | 9 |
- Applied Science | 307 | 13 | 10 | 7 |
EBITDA | 1,333 | -1 | -4 | 31.2 |
Operating profit before exceptional items | 910 | -4 | -7 | 21.3 |
Research and development | 327 | -3 | -5 | 7.7 |
Roche Diagnostics’ sales rose 4% in local currencies (8% in Swiss francs) during the first half of 2006. Following first-quarter growth of 3%, divisional sales accelerated in the second quarter, advancing at a rate of 5%. Roche Molecular Diagnostics and Roche Centralized Diagnostics continued to generate the majority of growth, with revenues from these businesses up 6% and 4%, respectively, for the period. Roche Near Patient Testing and Roche Applied Science continued to perform strongly, both posting double-digit growth.
The decline in the Division’s operating profit (before exceptional items) and operating margin reflects continued investment in the rollout of new products and continuing price pressure, especially in the clinical chemistry business. In addition, royalty income from PCR licences declined significantly due to the worldwide expiry of the basic PCR patents and one-off income from contracts in the first half of last year. At 21.3%, the operating profit margin remains well above the industry average.
The rollout and increased market penetration of the renewed Accu-Chek portfolio in the blood glucose monitoring segment are expected to contribute to accelerated sales growth in the second half of the year.
Diabetes Care — Roche retains market leadership
With sales up 6% in a promising second quarter, Roche Diabetes Care maintained its global market leadership in a highly competitive segment, despite the continued impact of declining sales of the Accu-Chek Advantage meter in the United States. Growth in the first six months was fuelled primarily by strong growth of the Accu-Chek Compact line and Accu-Chek Aviva, which is becoming one of the main growth drivers for Diabetes Care. The strong uptake of integrated systems such as Accu-Chek Compact Plus in North America and the launches of Accu-Chek Compact, Accu-Chek Integra and Accu-Chek Multiclix in several markets in Asia also contributed to this result. High sales volumes for the Accu-Chek Active meter in Latin America and Asia Pacific and very positive uptake of the Accu-Chek Spirit insulin pump in Europe are expected to further strengthen Roche’s market leadership. Overall, the insulin delivery business outside the US grew 22% in the first six months.
Centralized Diagnostics — rollout of cobas 6000 under way
Helped by continued above-market growth in immunodiagnostics sales (12%), Roche Centralized Diagnostics retained its leadership in the clinical laboratories segment. Overall sales by this business area rose 4% in the first six months. The first three configurations of the new cobas 6000 series of modular analytical systems were launched in Europe in June and are scheduled for release in the United States in the third quarter of 2006. This next-generation platform, which will ultimately be available in seven different configurations, is ideally suited for use in medium-size laboratories, complementing the division’s current offerings for large and small-size labs. Two other Roche Diagnostics systems that are about to set new standards of performance and customer value are cobas c 111 (clinical chemistry and electrolyte analyser for extra-small-workload laboratories) and cobas e 411, both due to be launched in the fourth quarter of this year.
Molecular Diagnostics — strong blood-screening portfolio
Roche Molecular Diagnostics posted sales growth of 6% for the period, maintaining a market share of around 40% in an increasingly competitive sector. Sales of virology products continued to grow in line with the market, with blood screening also remaining a major contributor to growth. LightCycler SeptiFast Test, which can rapidly and reliably detect and identify 25 bacterial and fungal pathogens responsible for about 90% of all sepsis (blood poisoning) cases, was launched in Europe. In June Roche began rolling out the new automated cobas s 201 modular blood screening system and comprehensive cobas TaqScreen MPX multiplex test across Europe. cobas TaqScreen MPX Test received CE (Conformité Européenne) certification in March 2006. US biologics license applications (BLAs) for this test and for cobas TaqScreen WNV Test, for detection of West Nile virus, are planned for the third quarter of this year.
Near Patient Testing — blood glucose monitoring systems gain market share
Roche Near Patient Testing posted strong growth in the first half of 2006, with sales up 11%. Roche Diagnostics’ leadership in coagulation monitoring was enhanced by the introduction of the CoaguChek XS system outside the United States. This instrument provides coagulation results on the spot, and virtually pain free, from a single drop of blood. Sales of blood glucose monitoring products advanced 35%, spurred by the trend towards tighter glycemic control in hospitalised patients and the fact that nearly all hospitals now perform blood glucose tests at patients’ bedsides. The Accu-Chek Inform meter and Accu-Chek Advantage/Sensor strips are clear market leaders in this segment. Sales of cardiac assays rose 12%, helped by the roll-out of the Cardiac proBNP test.
Applied Science — strong demand for LightCycler systems
Roche Applied Science posted strong growth of 10% compared with the first half of 2005. The LightCycler 480 instrument, for high-throughput real-time PCR analysis, and the Genome Sequencer 20 system were the main growth drivers. GS20, the first product to result from the strategic alliance with 454 Life Sciences, is being used in an increasing number of applications in the attractive gene-sequencing market.
About Roche
Headquartered in Basel, Switzerland, Roche is one of the world’s leading research-focused healthcare groups in the fields of pharmaceuticals and diagnostics. As a supplier of innovative products and services for the early detection, prevention, diagnosis and treatment of disease, the Group contributes on a broad range of fronts to improving people’s health and quality of life. Roche is a world leader in diagnostics, the leading supplier of medicines for cancer and transplantation and a market leader in virology. In 2005 sales by the Pharmaceuticals Division totalled 27.3 billion Swiss francs, and the Diagnostics Division posted sales of 8.2 billion Swiss francs. Roche employs roughly 70,000 people in 150 countries and has R&D agreements and strategic alliances with numerous partners, including majority ownership interests in Genentech and Chugai. Additional information about the Roche Group is available on the Internet www.roche.com.
All
trademarks used or mentioned in this release are protected by law.
Annex
Additional information
- Media release including a full set of tables
- Half-Year Report 2006
- Presentation (Investor Relations)
- Roche Pharma Pipeline
- Date of publication of the nine months sales release 2006: 17 October (tentative)
Disclaimer: Cautionary statement regarding forward-looking statements
This document contains certain forward-looking statements. These forward-looking statements may be identified by words such as ‘believes’, ‘expects’, ‘anticipates’, ‘projects’, ‘intends’, ‘should’, ‘seeks’, ‘estimates’, ‘future’ or similar expressions or by discussion of, among other things, strategy, goals, plans or intentions. Various factors may cause actual results to differ materially in the future from those reflected in forward-looking statements contained in this document, among others: (1) pricing and product initiatives of competitors; (2) legislative and regulatory developments and economic conditions; (3) delay or inability in obtaining regulatory approvals or bringing products to market; (4) fluctuations in currency exchange rates and general financial market conditions; (5) uncertainties in the discovery, development or marketing of new products or new uses of existing products, including without limitation negative results of clinical trials or research projects, unexpected side-effects of pipeline or marketed products; (6) increased government pricing pressures; (7) interruptions in production; (8) loss of or inability to obtain adequate protection for intellectual property rights; (9) litigation; (10) loss of key executives or other employees; and (11) adverse publicity and news coverage. The statement regarding earnings per share growth is not a profit forecast and should not be interpreted to mean that Roche’s earnings or earnings per share for 2006 or any subsequent period will necessarily match or exceed the historical published earnings or earnings per share of Roche.
20 July - Presentation in London – 14.00 GMT - 15.00 CET - 9.00 AM EDT
The Half Year Presentation followed by Q&A and additional break-out sessions will be held at Cabot Hall, Cabot Place West, Canary Wharf, London E14 5AB starting from 14.00 GMT / 15.00 CET / 9.00 AM EDT. Participants will be:
Franz B. Humer, Chairman of the Board of Directors and Chief Executive Officer
Erich Hunziker, CFO and Deputy Head of the Corporate Executive Committee
William M. Burns, CEO Division Roche Pharma
Severin Schwan, CEO Division Roche Diagnostics
This presentation can be followed by a live audio webcast with synchronized presentation slides accessed via http://ir.roche.com.
Alternatively, you can dial in to the conference using the following dial-in numbers (listen only mode, no live access to speakers):
+41 91 610 56 00 (Europe and ROW) or
+44 207 107 06 11 (UK) or
+1 866 291 41 66 (USA)
At 15.50 GMT / 16.50 CET / 10.50 AM EDT the break-out sessions covering the topics Strategy & Finance, Pharmaceuticals, Diagnostics and Accounting will be held following the main Q&A session.
The break-out sessions will be recorded and placed on the Roche website as soon as possible after the event.
REPLAY
A replay will be available one hour after the respective event, for 48 hours. Access is by dialing:
+41 91 612 43 30 (Europe) or +44 207 108 62 33 (UK) or +1 866 416 25 58 (USA) and enter the conference ID 180 followed by the # sign.
The webcast will be available on demand at http://ir.roche.com.