Roche is on a medicinal roll. The company operates two segments, pharmaceuticals and diagnostics, and sells its products in some 180 countries. Roche's prescription drugs include cancer therapies MabThera/Rituxan and Avastin, anemia treatment NeoRecormon/Epogin, hepatitis drug Pegasys, transplant drug CellCept, macular degeneration therapy Lucentis, and Tamiflu, which is used to prevent and treat influenza (including pandemic strains). The company markets many of its bestsellers through subsidiary Genentech and affiliate Chugai Pharmaceutical. Roche's diagnostics arm offers clinical lab supplies, genetic tests, diabetes monitoring supplies, and point-of-care diagnostics for health care providers.
Roche's pharmaceuticals division accounts for more than three-fourths of annual revenues, with oncology drugs making the largest sales contribution (45% of revenues). The smaller, yet faster-growing diagnostics segment is a leading maker of in vitro clinical diagnostic tests through its professional diagnostics segment; it is also an established provider of diabetes tests and glucose monitors.
The largest geographic markets for the pharma segment are the US and Western Europe. Product marketing efforts in the US are conducted through Roche's main US subsidiary, Genentech, which is one of the world's largest biotech companies. The company also has a solid stance in the Japanese drug market through its 60% stake in Chugai Pharmaceutical, and it is experiencing growth in Latin America and Asia.
As one of the top 10 global pharmaceutical companies, Roche has steadily grown its revenues and profits over the last decade. But while the company reported net income growth of 13% to more than $10 billion in 2011, largely attributed to its cost-control and efficiency programs (including workforce reductions and facility consolidation efforts), its revenues took a 9% dip to about $47 billion due to poor currency exchange rates for the Swiss Franc. However, Roche reported a group sales increase of 1% at constant exchange rates due to increased returns from sales of key pharmaceutical and diagnostic products.
Key drivers for growth in 2011 included rising global sales of Lucentis, Actemra/RoActemra, Mircera (for anemia in kidney disease patients), and four of the top cancer drugs (MabThera/Rituxan, Herceptin, Tarceva, and Xeloda). However, sales of one top selling cancer drug -- Avastin -- fell after the FDA revoked its indication for breast cancer. Revenues from bestseller Tamiflu also declined in 2010 and 2011 following a sharp rise in demand from flu pandemics and resulting government stockpiling in previous years. Growth in the smaller diagnostics business segment is attributed to increased sales of clinical laboratory supplies and cancer diagnostic products.
In order to expand its pharmaceutical product offerings and stave off revenue losses from patent expirations and other competitive pressures, Roche invests heavily in internal research and development programs to expand its pipeline of small-molecule and biotechnology drug candidates. The company has about 100 drugs in clinical development stages, the bulk of which aim to treat oncology, cardiovascular, metabolic, viral, inflammatory, autoimmune, and central nervous system disorders. New drugs that have emerged from Roche's pipeline include Zelboraf, a melanoma medicine marketed in partnership with Daiichi Sankyo and launched in 2011, Perjeta (pertuzumab), a new Genentech-developed breast cancer drug approved by the FDA in 2012.
The firm has also widened its R&D programs by forming partnerships with other drugmakers, such as Biogen Idec and Pharmasset, as well as through acquisitions. In addition to new drug formulas, Roche conducts R&D programs on existing drugs to gain regulatory approval for new indications, which typically helps to extend a drug's patent protection and increase sales volumes.
Not one to neglect its smaller division, Roche has been aggressively adding to its diagnostic testing stable through R&D, partnership, and acquisition efforts. In addition to clinical and diabetes tests, focus areas for the diagnostics division include tissue-based cancer diagnostics (through its Ventana Medical Systems subsidiary), life science (gene sequencing) technologies, and molecular diagnostics, which include personalized (or companion) tests that are used to determine the best treatment regimen for a specific patient.
Mergers and Acquisitions
Acquisitions are also key elements in Roche's R&D growth strategy, and have expanded its pharmaceutical segment in focused therapeutic areas. For instance, the 2011 purchase of drug developer Anadys Pharmaceuticals expanded its hepatitis C virus (HCV) development portfolio.
In the diagnostics segment, the company would have become a market leader in the gene sequencing market in 2012 had it been successful in its hostile attempts to acquire research equipment maker Illumina. Past purchases have expanded its professional and cancer testing operations.
Descendants of the founding Hoffmann and Oeri families own about half of Roche. In addition, fellow Swiss drugmaker Novartis owns 33% of the company. – less