Roche Announces Cost-Cutting Plan

Giant Swiss pharmaceutical company Roche (RHHBY) on Friday outlined a cost-cutting plan to help it offset pricing pressures in the U.S. and Europe, and following several setbacks in its late-stage research pipeline.

As Roche said: "In view of mounting pressures to curb health-care costs -- especially in the United States and Europe -- together with recent developments in late-stage projects in the Roche pipeline, this initiative aims to adapt cost structures and accelerate productivity improvements Group-wide."

Roche has suffered several recent setbacks, including in its diabetes and cancer units. Roche sells the world's best-selling cancer drug, Avastin, which had nearly $6 billion in sales last year, but with the Food and Drug Administration considering yanking approval of Avastin for breast cancer, analysts say the company stands to lose about $1 billion. In addition, Roche has experienced pricing pressures due to health-care reforms and austerity programs in Europe and the U.S., which have hurt its margins and sales.

CEO Severin Schwan said, "We will focus our resources towards investments that will drive innovation and ensure the company's long-term success, while at the same time protecting our profitability so as to safeguard our financial flexibility. Roche also confirms its full-year outlook for 2010."

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The world's largest seller of cancer drugs believes that as health-care budgets tighten, customers will prefer treatments and diagnostic tools that provide the highest medical value for patients. Therefore, it emphasized the plan isn't "simply a cost-reduction effort but is above all about pro-actively setting the right priorities to ensure a successful future."

The plan's details will be announced before the end of the year and implemented in 2011 and 2012, Roche said, following a review of all parts of the organization, including process and structure, over the next months. The plan could include job cuts. And Reuters reports analysts believe the cost savings could easily reach 2 billion Swiss francs ($1.9 billion) as of 2012 to 2013.

"We have launched this initiative from a position of strength. By contrast with many of our competitors, we are only marginally affected by patent expiries. Furthermore, despite the recent setbacks, we have one of the strongest R&D product pipelines in the industry," Schwan added.
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