Roche profit hit by Genentech deal

Roche, the maker of the Tamiflu flu drug, missed forecasts with a 29 percent drop in first-half net profit, hit by costs related to its $47 billion acquisition of Genentech.

However Roche, which is also the world’s largest maker of cancer drugs, also upped its earnings guidance on Thursday, now expecting double-digit core earnings per share growth in 2009 and 2010 and said it will use cash flow to repay net debt used.

Healthcare is normally one of the last areas where consumers cut back and has posted a string of strong earnings performances, with the world’s two biggest drugmakers Pfizer and GlaxoSmithKline beating forecasts, as well as Roche’s Swiss rival Novartis.

The sector does however face looming threats of more competition, problems getting new drugs to market and cheaper medicines from generics manufacturers.

Roche’s first-half net profit fell to 4.1 billion Swiss francs ($3.8 billion) from 5.7 billion francs in the same period last year and compared to an average forecast of 5.0 billion francs, according to a Reuters poll of 15 analysts.

Total Tamiflu production capacity, including third-party manufacturers, will be expanded to 400 million packs annually by the start of 2010, Roche said.

Roche trades at a premium to European rivals like Glaxo, Sanofi-Aventis, Novartis and AstraZeneca thanks to its strong position in cancer and biotech drugs and its lack of exposure to generic competition.

The Swiss group bought out U.S. biotech partner Genentech earlier this year to reinforce its position in cancer medicines and now expects annual synergies of 1 billion francs from the deal.

It incurred exceptional operating expenses of 2 billion francs connected with the Genentech deal in the first half and sees total integration costs of about 3 billion francs.

Source: Reuters