Roche CEO Severin Schwan (photo) is a glass-half-full kind of guy. And he has some reason to be. Roche turned in a profit increase, despite dragging U.S. revenues and pricing pressures in Europe, and it managed to get 18 new products through the FDA last year. But as the Wall Street Journal points out, there are plenty of reasons to temper Schwan's optimism.
Consider the company's 2011 forecast, which analysts greeted with sighs. "The outlook for 2011 is disappointing," Kepler analyst Martin Voegtli told Reuters, saying analysts would have to lower estimates for core EPS. Then there's the fact that regulatory setbacks helped spawn a companywide cost-cutting program that's set to claim about 4,800 jobs. The restructuring is a one-off event, Schwan says, but its prescribed cuts continue during the next two years.
Or consider Avastin. The company slashed its peak sales forecast on the cancer drug by about 20 percent. Roche expects Avastin to top out at about $7.5 billion now, thanks to the FDA's recent decision to revoke its breast cancer indication. The company has appealed, so that's not the final word, but sales have already started to slow. "Fourth quarter sales were quite a bit below expectations and the main shortfall was Avastin," Helvea's Karl-Heinz Koch told Bloomberg. "It seems to be flattening out and that's been the main value driver for Roche."
Meanwhile, a new study from the Journal of the American Medical Association highlights Avastin's potential for serious side effects, saying that Avastin patients were 46 percent more likely to die from an adverse event than patients on chemo alone. The absolute risks remain low--2.5 percent versus 1.5 percent in chemo patients--and the study authors said doctors shouldn't stop using the drug, just consider carefully which patients to treat. Roche disputes the findings, saying the data review included trials for indications never approved by the FDA, including pancreatic cancer.
Almost as an aside, Roche also warned that its eye drug Lucentis may soon suffer a sales decline if a head-to-head study shows Avastin is as effective at treating macular degeneration. Even at worst-case scenario, if Lucentis sales collapse, 2011 sales won't be affected, the company said. "Our guidance accommodates what we believe will be the outcome of [the study]," Genentech CEO Pascal Soriot said. "Lucentis represents around three percent of Roche's sales, so we can accommodate that."