UPDATE 4-Roche takes knife to costs, slashes 4,800 jobs

Wed Nov 17, 2010 6:50am EST

* Roche aiming for annual cost savings of 2.4 bln Sfr

* To cut 4,800 jobs, 6 pct of workforce, over next 2 yrs

* Largest job cuts in sales and marketing, manufacturing

* Confirms 2010 outlook

* Shares up 2.0 percent, outperform sector index

(Adds more detail, updates stock price)

By Katie Reid

ZURICH, Nov 17 (Reuters) - Roche Holding AG (ROG.VX) set out plans to slash costs on Wednesday, joining Big Pharma rivals with a wide-ranging restructuring programme as it grapples with recent product setbacks and mounting pressure on prices.

The Swiss drugmaker said it would hack 2.4 billion Swiss francs ($2.4 billion) from annual costs from 2012 onwards, with 1.8 billion francs of savings expected next year.

"The disclosed savings target of 2.4 billion francs per year from 2012 onwards is a positive surprise. The great majority of market participants expected Roche to announce savings of 2 billion francs," said DZ Bank analyst Thomas Maul.

The group's stock was 2.0 percent higher at 1120 GMT, outperforming a 1.1 percent gain in the European healthcare index .SXDP.

"Roche pessimists had not even expected the company to achieve 2 billion francs in savings. We might see double-digit upside revisions of earnings estimates (and) a clear improvement of sentiment," Maul said.

Until now, the world's largest maker of cancer drugs has been alone among major European pharmaceutical companies in not implementing any significant cost-cutting in recent years.

But events have caught up with the Basel-based group this year, following a series of setbacks for its top-selling Avastin drug, used to fight a range of cancers, and disappointments for once-promising new drugs in its pipeline.

Price pressure in the United States and Europe is also expected to have an impact of 500 million francs on the group this year and this is likely to rise to 1 billion francs next year, Roche Chief Executive Severin Schwan told Reuters.

Its stock has fallen nearly 19 percent so far in 2010, making it the worst performer in the global large-cap drugs sector and piling pressure on Schwan to deliver more value for investors in the family-controlled business.

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Roche SPECIAL REPORT, Sept. 15: r.reuters.com/sed24p

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JOB CUTS

The group will slash 4,800 jobs worldwide, or about 6 percent of its current workforce of around 82,000, over the next two years and is also looking for buyers for some of its sites in the United States.

Most of the planned job cuts will be in Roche's pharma unit, particularly in the division's global sales and marketing organisation, and in manufacturing after the setback of diabetes medicine taspoglutide and structural adjustments in the primary care sales business.

The group expects restructuring costs of 2.7 billion francs from 2010 through 2012.

"If Roche's programme succeeds, the company will increase its profit by around 20 percent to 25 percent per annum. Given the low valuation, we see upside potential," one Zurich-based trader said.

Roche, once the darling of the pharma industry, is trading at around 10 times 2011 earnings, at a slight discount to cross-town rival Novartis (NOVN.VX), which said on Wednesday it aims to improve profitability by ramping up a group-wide efficiency drive. [ID:LDE6AG0SY]

Roche is now looking for buyers for its sites in Florence, South Carolina, Colorado.

The group will also stop some activities in research and early development, including in Kulmbach, Germany, as well as in Nutley, New Jersey, and Madison, Wisconsin.

Roche, which has 31 programmes in Phase III trials and 12 new molecular entities in its late-stage pipeline, was looking to increase its productivity in R&D, Schwan said.

Drugs, including a BRAF inhibitor to treat an aggressive form of skin cancer, MetMab for lung cancer and lebrikizumab for asthma could be among Roche products with the most promising prospects, Schwan said.

Schwan said Roche was still interested in going for external partnerships, licensing deals as well as small and medium-sized acquisitions -- worth hundreds of millions of dollars to around $3 billion.

But he declined to comment on a report that Swiss biotech Actelion (ATLN.VX), the subject of recent takeover talk, had approached Roche about taking a minority stake in the group. [ID:nLDE6AG037] ($1=.9932 Swiss Franc) (Additional reporting by Ben Hirschler in London; Editing by Jon Loades-Carter and Hans Peters)

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