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Roche sees slower growth but confident on Genentech

By Sam Cage
/ Source: Reuters

By Sam Cage

BASEL, Switzerland (Reuters) - Swiss drugmaker Roche sounded a wary note about 2009 after its results missed forecasts on Wednesday, but said it was confident its hostile $42 billion bid for Genentech would succeed.

Roche sees growth slowing this year after its 2008 profit fell 5 percent to 10.8 billion Swiss francs ($9.30 billion), hurt by a decline in sales of its pandemic influenza drug Tamiflu and the strong Swiss franc, pressuring its stock on Wednesday.

"Over the last seven, eight years did you ever see that this management team did not achieve a major task which we had announced to you?" Chief Financial Officer Erich Hunziker said on a conference call, referring to the bid to buy the 44 percent of Genentech that Roche does not already own.

Roche Holding AG stock fell 9.5 percent to 147.20 francs by 1345 GMT, compared with a 1.1 percent weaker DJ Stoxx European healthcare index , and wiping some $12 billion off its market value.

Genentech shares were down 7 cents at $82.90 in premarket trading, from their Tuesday close of $82.97 on the New York Stock Exchange.

"Roche reported disappointing full-year results and also offered a disappointing outlook," Deutsche Bank analyst Michael Leuchten said in a note.

Roche expects mid-single-digit sales growth for both divisions and the group this year, a cut from its 2008 forecast of high-single-digit growth, but said the impact of the economic downturn had been minimal and it had no concrete plans to cut jobs.

Its results were hurt by a fall off in sales of antiviral Tamiflu, which have dropped rapidly after earlier stockpiling in case of an influenza pandemic.

Pharmaceutical companies like Roche have proven relatively resilient during the economic downturn as healthcare is usually one of the last areas where customers cut back spending.

DZ Bank analyst Thomas Maul said Roche was still a good bet: "For long-term investors we see Roche as a basic investment in pharmaceuticals due to its outstanding pipeline and strong position in the cancer market."

Roche saw core earnings per share (EPS) remaining at its 2008 level this year, despite expecting a lower net financial result as it ramps up research and development spending, and proposed a higher-than-expected dividend of 5 francs a share.

GENENTECH BID

The Swiss company last week launched a surprise hostile offer for U.S. biotech group Genentech, at a price below its original rejected bid, reflecting tougher financing conditions and a drop in the U.S. group's shares.

Roche said it expects the acquisition of Genentech to have a positive impact on core EPS within the first year of closing and it will update targets after the deal has been closed.

Chief Executive Severin Schwan told journalists Roche was not buying Genentech shares on the open market and said the company only expected to meet shareholders after it files the tender offer.

The Swiss group -- which expects to finance the deal through its own funds, bonds, commercial paper and bank loans -- has not yet finalised agreements with banks on financing, Schwan said.

Roche trades at about 13 times forecast 2009 earnings, a premium over its local Swiss rival Novartis AG and other big European drugmakers like GlaxoSmithKline Plc and Sanofi-Aventis SA due to its promising portfolio of cancer drugs and growth prospects.

Roche is also a step ahead of many competitors because it has limited exposure to generic or copycat versions of its drugs and is trying to reinforce that position with its attempt to buy the 44 percent of Genentech it does not already own.

Its cancer drugs posted a solid performance, underpinned by blockbusters MabThera, Avastin and Herceptin, all of which sold more than 5 billion francs. Group sales fell 1 percent to 45.6 billion francs, but were 6 percent higher when currency effects were stripped out.

Roche had been expected to post net profit of 11.4 billion francs and sales of 45.6 billion, according to a Reuters poll. Analysts had seen its dividend at 4.94 francs.

($1=1.161 Swiss Franc)

(Additional reporting by Katie Reid and Rupert Pretterklieber in Zurich; Editing by Rupert Winchester and Simon Jessop)