Roche misses the mark in 2014 despite sales wins

Roche CEO Severin Schwan

Roche's ($RHHBY) growing cancer drug sales couldn't overcome unfavorable exchange rates and stepped-up costs, with the drugmaker's earnings failing to climb for the first time in three years. And while the Swiss drugmaker is staying optimistic about its prospects for the coming year, analysts say Roche's stars are going to have to perform better if it is going to grow revenues in an increasingly competitive oncology market.

The Basel-based company reported a 16% drop in annual profit after restructuring some of its debt and taking a hit from cuts in U.S. laboratory test reimbursements, it said Wednesday. The dip came in spite of a 5% increase in sales to 47.5 billion Swiss francs, fueled by the success of its HER2-positive breast cancer meds, Herceptin, Perjeta and Kadcyla.

The earnings report was "hardly one for the history books," Barclays analyst Michael Leuchten wrote in a note seen by Bloomberg. "This is a less inspiring set of results than we have seen from Roche in the past."

And while Roche is upbeat about its 2015 prospects, currency woes will continue to weigh on the pharma giant going forward. The Swiss franc's strength could knock operating profit growth down by 9 percentage points this year, it said. CFO Alan Hippe said at a press conference that its climb could whittle 6 percentage points away from sales growth based on the average exchange rate for January.

After facing its fair share of stumbling blocks in 2014, including disappointing late-stage study results for breast cancer drug Kadcyla and a discontinuation of its late-stage study of Alzheimer's disease candidate gantenerumab, Roche hopes that breakthrough lung fibrosis drug Esbriet and new cancer therapies will be enough to grow sales in 2015. Roche has 7 investigational medicines for 5 types of cancer under development, the company noted, and its anti-PDL1 drug shows promising early results in combination with Avastin in renal cell carcinoma. All told, it's expecting sales to climb by a "low- to mid-single-digit" percentage.

Still, analysts remain wary of the drugmaker's prospects in the coming year after this year's less-than-stellar performance. "I'm definitely more concerned on Roche than what I was before, especially when I look at some of the failures they had in 2014," Odile Rundquist, an analyst at Baader-Helvea, told Bloomberg. "They really need to strengthen the top line because we know the oncology market will become more and more competitive."

- read Roche's release (PDF)
- here's the Bloomberg story

Special Report: The top 10 pharma companies by 2013 revenue - Roche