U.S tax change to help Roche's 2018 profit growth outpace sales

BASEL, Switzerland (Reuters) - Swiss drugmaker Roche ROG.S forecast on Thursday that U.S. tax changes would help profit growth outstrip sales in 2018, while new drugs for multiple sclerosis and cancer would offset revenue declines from older medicines.

The logo of Swiss drugmaker Roche is seen at its headquarters in Basel, Switzerland February 1, 2018. REUTERS/Arnd Wiegmann

Roche said it expected sales to stay flat or grow by a low-single-digit percentage. However, core earnings per share were targeted to grow by a high-single-digit, helped by U.S. tax reform that will reduce Roche’s tax rate from 26.6 percent in 2017 to “the low twenties”.

Tax changes under U.S. President Donald Trump have had a big impact on investor sentiment towards drugmakers in recent weeks, with AbbVie's ABBV.N stock rising after it projected a big benefit, while Pfizer's PFE.N was hit by disappointment its tax rate would not be lower.

Excluding the tax changes, profit would grow in line with sales, Roche said, as chief executive Severin Schwan confirmed the drugmaker expected to boost sales and profit even as its $22.5 billion-per-year drugs trio of Rituxan, Herceptin and Avastin faces increasing competition from cheaper copies following patent losses.

“While we are ... facing the entry of biosimilars for important medicines, the strength of our portfolio and the success of our recent launches makes us confident we can compensate for this impact,” Schwan told reporters.

“There is definitely the chance that we will not simply compensate for biosimilars, but that we will be able to overcompensate with our new drugs.”

Schwan highlighted new medicines including Ocrevus for multiple sclerosis, cancer immunotherapy Tecentriq and lung cancer drug Alecensa, which together contributed 1.4 billion Swiss francs ($1.5 billion) of new sales in 2017.

Total sales increased in 2017 by 5 percent to 53.3 billion francs ($57 billion), close to the average estimate in a Reuters poll of analysts.

Net income under IFRS accounting standards dropped to 8.8 billion francs from 9.7 billion francs a year earlier as Roche took charges including for its lung medicine Esbriet, which was hit by sluggish sales in early treatment indications.

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Roche, whose impairments on intangible assets more than doubled to 3.5 billion francs, spent $8.3 billion in 2014 to buy InterMune, which sells Esbriet.

Some analysts said Roche’s guidance was conservative and could set up positive surprises later, like in 2017 when Roche raised its sales forecast. Others cautioned the tax benefits could not mask the growing pressure from biosimilars.

“Despite a U.S. tax benefit that was indeed much better than consensus had expected, Roche’s weak underlying 2018 guidance of sales and core EPS ‘stable to low single digit’ growth will likely not be taken well,” Kepler analysts wrote in a note to investors. They have a “hold” rating on the shares.


Shares in Roche, whose Genentech unit in the United States generates much of its sales and profit, handed back early gains to trade down 0.5 percent at 0930 GMT.

The Basel-based company's shares are flat over the last 12 months, trailing cross-town rival Novartis NOVN.S, whose stock has gained 16 percent.

Roche proposed raising its dividend to 8.30 francs per share, below analysts’ average forecast of 8.45 francs. It said it aimed to raise the payout again this year.

Among key drugs, top seller Rituxan for blood cancer rose just 1 percent to 7.4 billion francs. Growth in the United States just offset an 11 percent drop in Europe as rivals including Novartis introduce copies.

Avastin, whose patents don't expire until 2019, still dropped 2 percent to 6.7 billion francs as some U.S. lung cancer patients switched to Merck's MRK.N Keytruda and French authorities stopped reimbursing for breast cancer, Roche Pharmaceuticals Division chief Dan O'Day said.

Herceptin rose 3 percent to 7 billion francs, while Perjeta rose 19 percent to 2.2 billion francs.

Schwan said the U.S. tax changes would “without a doubt” underpin the strength of the world’s largest economy. “You cannot underestimate the impact of the U.S. tax reform on the country’s competitiveness,” he said.

($1 = 0.9328 Swiss francs)

Editing by Alexander Smith and Mark Potter