Roche Holding AG's CEO Discusses Q4 2011 Results - Earnings Call Transcript
Roche Holding AG (
)
Q4 2011 Earnings Call
February 1 2012 10:00 am ET
Executives
Severin Schwan - CEO - Roche Group
Pascal Soriot - COO - Pharmaceuticals
Daniel O'Day COO - Diagnostics
Alan Hippe - Chief Financial and IT Officer
Analysts
Sachin Jain - Merrill Lynch
Amit Roy - Nomura
Andrew Baum - Citi
Presentation
Severin Schwan
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Good afternoon ladies and gentlemen. 2011 has been a very good year for the Roche Corp, both from a financial point of view, but also in terms of the significant progress we've made in our late stage pipeline. Let me get directly into the overview of the financial results. We achieved all our targets we have set ourselves at the beginning of 2011. Overall group sales were up by 2% at constant rates. Pharma, up by 1% in spite of the expected decline of Avastin in the metastatic breast cancer indication in the US.
Diagnostics again outgrowing the market with an increase of 6% primarily driven by our Immunology business and also by our strongly growing tissue-based diagnostics. Operational excellence is fully on track. We delivered 1.8 billion Swiss francs in savings as expected and as announced one year ago.
Core EPS, up by 11% at constant rates and based on these results the Board proposed a dividend increase of 3% which in fact is the 25
th
consecutive year of dividend growth. One year ago when I presented here, I stressed that on the one hand we are going to continue to drive innovation and growth to drive our pipeline, but on the other hand we have to equally work on our productivity.
So let me quickly show on a high level where we stand after one year and let me start on the efficiency on the productivity side. Again we have increased our operating margins. We now stand at 36% relative to sales and as you can see on the following slide, this is very much linked to our operational excellence program. You can see that we lost 600 million due to healthcare reforms in the US and Europe, also Japan. We lost over a billion due to the expected decline of Tamiflu of Avastin metastatic breast cancer and also the patent expiries for Boniva and CellCept.
We had an underlying profit growth of about a billion and you can see that we added another 1.8 billion due to the Operational Excellence program. So that has been key, that has been crucial to achieve the results we achieved in 2011.
As to the dividend, as I said earlier the 25
th
consecutive year of dividend growth, an increase of 3% in spite of the strengthening of the Swiss franc and that represents a payout ratio of 55%.
Now let me switch to the other dimension driving our pipeline. It’s being really an impressive year for Roche in terms of pipeline progress. Just to give you an overview here, we had 20 late-stage clinical trials leading out in 2011 alone and 17 of those delivered positive results.
So that is really outstanding not only from a Roche perspective, but I think also from an industry perspective and that of course spills over into our late-stage pipeline. We have now 12 new molecular entities in our late-stage pipeline and we made very good progress in 2011. In fact we filed three new molecular entities in our late-stage pipeline and we made very good progress in 2011, in fact we filed three new molecular entities.
Zelboraf malignant melanoma, Erivedge, we just got the approval in US two days ago for basal cell carcinoma and we filed pertuzumab in breast cancer with very impressive data and Pascal will in a moment give you more details in particular on those three filings.
Also worthwhile to mention is, that six out of those twelve new molecular entities that is half of our pipeline is now developed in combination with the diagnostics, with a companion diagnostics. So personalized healthcare is now really moving from the labs to the patients. It is getting reality and certainly the highlight was the launch of Zelboraf last year which was launched simultaneously with our BRAF test from the Diagnostics Division.
Let me just share a few words on the proposed Illumina acquisition. One of the key success factors in diagnostics was the most important reasons why we have outgrown the market year-over-year over the last couple of years is the complete solution we can offer to our customers. We can provide them a wide range of diagnostic tests based on a number of different human samples. And in order to be able to provide this wide range of tests to our customers, it is important to have the key technologies to perform those tests.
Now, we work on those technologies of course internally. We have developed many of those technologies in house, but if you look back over the last 20 years, occasionally we have acquired key technologies to get them in-house and to build out platforms and our portfolio.
So in the beginning of the 90s, we bought the PCR technology, which is today the basis for molecular testing. There were no tests at the time. Today, this is a multi-billion segment and we continue to be the leader in this segment.
Later on, we bought [IHN] which is the basis for our growth in immunology with the ECL technology. As you know, we have entered tissue-based diagnostics a couple of years ago with the Ventana acquisition and we do believe that gene sequencing will be one of these key technologies as we move forward to be this provider of a complete solution for our customers in diagnostics.
So let me now conclude with an outlook for 2012 and let me start on the sales side. Really the message here on this slide is that both for a group and for pharma, sales are going to accelerate again as we go in to 2012. There is a base effect on Avastin of course. We expect continued growth in diagnostics in our key franchises in pharma and of course we have a number of product launches Pascal will touch upon in a moment.
We will equally continue to work on our productivity. There is still another 600 million to go in terms of operational excellence. So we achieved savings of 1.8 billion in 2011 and we intend to increase this on an ongoing annual basis to 2.4 billion for 2012 and this is exactly in line with what we announced already in 2010 and we’re fully on track to achieve that.
So with this to conclude, sales growth expected to be in the low to mid single digits on the group and on the pharma level diagnostics again to outgrow the market, operational excellence savings as I said of $2.4 billion and we intend to increase our core EPS in the high single digits.
Let me also state very clearly that we will continue our attractive dividend policy and I emphasize irrespective of the planned Illumina acquisition. So on this positive outlook, Pascal if I may hand over to you for Pharma.
Pascal Soriot
Thank you Severin. Good afternoon, so really a pleasure to be here. About a year ago, I think I stood here at this very place. I think I saw you were sitting almost in the same seat in fact and I was telling to you about 2010 and the setbacks we had in the portfolio and I was trying to tell you the pipeline looked good and the future was good, but of course we didn’t have much to show for it.
So hopefully you’ll agree with me we have made tremendous progress with that pipeline. I have to say though 2011 was still a transition year. I think we made enormous progress as Severin just told you minute ago as far as the portfolio for raising our pipeline, there is more to come in 2012 and beyond. It was also a transition year from a sales viewpoint. We had to deal with Avastin breast cancer, we had to deal with the remaining decline of Tamiflu coming from the disappearing
pandemic sales. We had couple of patent expiries still with CellCept, with Bonviva. We had the Japanese earthquake that impacted our Chugai friends in Japan. So quite a number of events we had to manage and also of course very much to the austerity measures throughout the world but particularly in Europe.
If you look at sales you've seen the press release, you won't be surprised here. This is the reflection of this transition. We grew by 1% overall. I have to say we grew in line with the market. We just have to accept that until two years ago we had a pharmaceutical market that was growing by 10% a year and now we are talking 0% to 2%. So 1% is very much in line with the market.
The US grew by 3% based on the overall decline essentially because of the austerity measures, price reductions, but also very much through utilization controls. And Japan was impacted by the earthquake as I said.
And the international market actually grew quite nicely. In fact, in Brazil, in Russia, in China that are the three biggest emerging markets that we focused on, we actually grew faster than the market; in many cases more than twice the market growth rate.
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