UPDATE 5-Roche Q1 sales fall short on weak Avastin demand

* Roche Q1 sales fall 9 pct to 11.1 billion Swiss francs

* Trails average estimate of 11.36 bln Sfr in Reuters poll

* Drugmaker confirms 2011 outlook

* Roche stock trades 0.8 pct lower, underperforms sector

(Adds link to Reuters Insider, updates stock price)

By Katie Reid

ZURICH, April 14 (Reuters) - Demand for Roche's (ROG.VX) key cancer drug Avastin fell further in the first quarter, adding to the Swiss drugmaker's woes as it grapples with a slump in Tamiflu revenue and a push by governments to cut health costs.

Avastin, which is used to treat a range of tumours, has been hit by moves from healthcare authorities on both sides of the Atlantic to curb its use in breast cancer.

The overall sales weakness combined with a strong Swiss franc and uncertainty surrounding key eye drug Lucentis are casting a shadow over the outlook for Roche, which is already slashing costs after a string of product setbacks.

But the group stuck to its outlook for 2011 and said it was aiming for core earnings per share growth at a high single-digit rate at constant exchange rates.

Group and pharmaceuticals sales, excluding Tamiflu, are seen growing at low single-digit rates in local currencies.

First-quarter sales slipped 9 percent in Swiss francs to 11.1 billion Swiss francs ($12.38 billion), missing the average estimate of 11.36 billion in a Reuters poll as Avastin sales fell 6 percent in local currencies to 1.4 billion francs. [ID:nLDE73A1DO]

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Graphic on sector valuations r.reuters.com/pyx88r

Reuters Insider interview with Roche CEO Severin Schwan

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Rheumatoid arthritis drug Rituxan, also known as MabThera, replaced Avastin as Roche's top-selling drug this quarter as sales of the treatment rose 7 percent in local growth rates to 1.6 billion francs.

At 1423 GMT, Roche stock was trading 0.8 percent lower, underperforming a near flat European healthcare sector index. .SXDP.

"At a product specific level, Avastin and Pegasys were light with Lucentis and Tamiflu ahead. With no profit numbers disclosed and it still being relatively early in the year, it is no surprise that guidance was just reiterated," Jefferies analyst Jeffrey Holford said in a note.

Roche, which only gives sales at the quarterly stage, was also hit by a 47 percent drop in sales of Tamiflu, a pill to treat flu, though demand was higher than analysts had expected.

The absence of last year's windfall profits from drugs and vaccines to tackle the H1N1 swine flu pandemic will be a common theme for several European drugmakers this earnings season.

Investors will also eye full results from other large drugmakers, including Eli Lilly (LLY.N), Novartis (NOVN.VX), Johnson & Johnson (JNJ.N) and Abbott (ABT.N), for more insight into how companies are dealing with other sector-wide problems.

Cash-strapped governments across Europe are pushing ahead with a drive to lower costs, while U.S. President Barack Obama is stepping up his drive to get healthcare spending under control in an effort to curb his country's bloated budget.

Roche Chief Executive Severin Schwan told reporters on a conference call that U.S. healthcare reforms had an impact of 0.6 percentage points on first-quarter sales in terms of growth.

"In Europe this impact was slightly higher, of about 1 percentage point, which also has to do with the fact that the European austerity measures only phased in over the year in 2010, so you have a higher base effect for the first quarter than in the United States," Schwan said.

Schwan said these effects should level out to a certain degree in the second half of this year as there will be less of a base effect.

AVASTIN ACHE

Roche has already cut its peak sales forecast for Avastin, which had sales of 6.5 billion francs in 2010, to around 7 billion francs after U.S. authorities proposed revoking approval of the drug to treat breast cancer. [ID:nLDE710163]

European authorities have also limited use of the drug to treat this disease. [ID:nLDE6BF1T7]

The Basel-based group has said it could lose up to 800 million francs of Avastin sales in breast cancer treatment in 2011.

Roche, once seen as the darling of the pharmaceuticals industry, is trading at around nine times 2012 earnings, at a discount to cross-town rival Novartis at 9.6 times.

Investors are now keenly awaiting the results of the CATT study comparing Roche's eye drug Lucentis with low doses of Avastin in treating a leading cause of blindness in the elderly. [ID:nLDE72S1T6]

Billions of dollars of Lucentis sales hinge on the head-to-head comparison. If Avastin proves as good as Lucentis in wet age-related macular degeneration (AMD) it will offer a much cheaper alternative for the age-related eye disease.

Lucentis is sold by Novartis outside the United States.

But Schwan said regardless of the outcome of the trial, which is expected imminently, Roche would be able to manage this within its guidance as Lucentis only accounts for 3 percent of Roche's total turnover.

(Editing by David Cowell, Ben Hirschler and Erica Billingham)