July 26, 2018 / 5:25 AM / a month ago

Upbeat Roche bests rival Novartis as new drugs fuel growth

ZURICH (Reuters) - Swiss drugmaker Roche (ROG.S) on Thursday outshone crosstown rival Novartis (NOVN.S) by boosting its 2018 sales outlook, helped by new medicines in a year when many feared patent expirations and cheaper copies would put growth at risk.

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

Roche first-half sales rose 7 percent in constant currencies, topping the 5 percent rise Novartis reported last week. Its shares were 3 percent up by 0710 GMT, outperforming Novartis’ 0.3 percent rise.

Chief Executive Severin Schwan now expects mid-single digit sales growth, up from a low single-digit percentage rise. Core earnings per share, including more robust benefits from U.S. tax reform changes than previously expected, will grow in the mid-teen digit percentages, he said, up from the earlier prognosis of low-teen digit growth.

Schwan has insisted his pipeline of new drugs would more than absorb the hit from looming patent expirations on Roche’s $21 billion trio of cancer drugs Herceptin, Avastin and Rituxan.

So far, he is right, with multiple sclerosis drug Ocrevus topping $1 billion in sales in the first half, Perjeta gaining traction in breast cancer and new lung cancer drug Alecensa’s revenue nearly doubling.

“Overall, we are very well on track to rejuvenating our portfolio,” Schwan told reporters on Thursday on a call. “I am very confident in our ability to continue our growth beyond the current year, despite the further market entry of biosimilars.”

Novartis Chief Executive Vas Narasimhan, whose headquarters is just across Basel from Roche’s new 178-meter (584 ft) skyscraper, was more hesitant last week when he stuck to his 2018 forecast of low- to mid-single digit revenue growth. Narasimhan did hint at a potential upgrade sometime in the current quarter.

Roche joins other global drugmakers who are lifting their guidance this earnings season: Eli Lilly’s (LLY.N) second-quarter revenue rose 9 percent, and the Indiana-based drugmaker raised its profit forecasts for the full year.

Roche first-half sales rose 7 percent to 28.1 billion francs ($28.35 billion), compared with an average forecast of 27.5 billion francs in a Reuters poll.

Its core operating result climbed to 11.2 billion francs, compared with a forecast of 10.369 billion francs.

The business is “firing on all cylinders”, said Ian Hilliker, a Jefferies analyst. He has a “buy” rating on the stock.

Quarterly sales rose 7 percent, the fastest rate in more than three years.

First-half drug sales in the United States grew 15 percent, helping to offset the 8 percent decline in Europe where Roche is more exposed to biosimilar copies.

These drugs that mimic Roche’s older biological remedies are increasingly being churned out by rivals including Novartis and South Korea’s Celltrion (068270.KS), and have begun making inroads into the Swiss drugmaker’s cancer franchise.

Rituxan slipped 9 percent globally after sales in Europe plunged almost 50 percent. Rituxan is no longer Roche’s best-selling drug, having lost that perch to breast cancer medicine Herceptin.

Herceptin sales were 3.6 billion francs for the half-year, up 2 percent on U.S. strength despite a 7 percent decline in Europe where biosimilars are already on the market.

BIOSIMILAR DEFENSE

While increased competition will likely accelerate Herceptin’s sales erosion in the second half of 2018, Schwan said he had a multi-pronged approach to limit the damage.

Schwan talked up injectible Herceptin’s merits over new copies that must be given as less-convenient infusions.

He also highlighted Roche’s newer drug Perjeta, whose sales rose 27 percent in the first half to 1.3 billion francs as it is used increasingly in early-stage breast cancer or mixed with Herceptin in high-risk patients.

“It’s first and foremost about the successful launch of the new medicines,” he said.

Reporting by John Miller, Editing by Sherry Jacob-Phillips and Emelia Sithole-Matarise

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