Drugmaker Roche faces a double whammy in 2011 as demand for best-selling Avastin cancer drug slows and U.S. healthcare reforms combined with a drive by European governments to cut drugs bills eats into its profit.

The world's largest manufacturer of cancer drugs, looking to reduce costs after a string of product setbacks, is bracing for lower sales growth this year. It now expects sales to grow at low single-digit rates in local currencies in 2011.

Its sales outlook does not include flu drug Tamiflu.

The group's core earnings per share (EPS) rose 4 percent to 12.78 francs, but fell short of a forecast for 13.0 francs in a Reuters poll as sales growth of its top-selling cancer drug Avastin, which has been a cash cow for the group, slowed.

Roche, which expects the U.S. healthcare reforms and European austerity measures to shave 500 million Swiss francs off its profit this year, said it is aiming for 2011 core earnings per share growth at a high single-digit rate at constant exchange rates.

The outlook for 2011 is disappointing, said Kepler analyst Martin Voegtli, adding analysts would have to lower estimates for the company's core earnings per share.

Roche stock, which had risen 5 percent this year after falling 22 percent in 2010, was down 2.0 percent at 1237 GMT, underperforming the STOXX Europe 600 healthcare index.

Roche's comments echoed downbeat 2011 outlooks from rivals --AstraZeneca, Bristol-Myers Squibb, Johnson & Johnson, Novartis

and Pfizer -- as the pharma sector braces for higher costs from U.S. healthcare reform, pressure to keep a lid on prices and patent expiries of key drugs.

Investors are also looking to results from Merck & Co. and GlaxoSmithKline later this week for more insight into the sector's health.

Expectations that GSK will restart a share buyback program in 2011 rose on Wednesday with the sale of its stake in Quest Diagnostics for some $1.7 billion.


Roche cut its forecasts for Avastin peak sales, which it now expects to be around 7 billion francs. It had said peak sales were likely to be at the low end of the 8-9 billion franc range if U.S. authorities revoked approval of Avastin for use in the treatment of breast cancer.

Sales of the world's best-selling cancer medicine grew 2 percent in the final three months of 2010, down from 7 percent in the previous quarter, while fourth-quarter sales at the key pharma unit slumped 8 percent.

Avastin is the main shortfall (in the fourth quarter), but Herceptin was also weak, Helvea analyst Karl-Heinz Koch said.

U.S. regulators revoked Avastin's approval for use in treating breast cancer late last year after trials showed the drug failed to help patients live longer. European authorities have also limited use of the drug to treat this disease.

Roche said it could lose up to 800 million Swiss francs of Avastin sales in breast cancer treatment in 2011.

The group is now banking on use of the drug in ovarian cancer to drive future sales growth of Avastin and is planning to file for regulatory approval in this setting at the end of the year in the United States and it may launch it next year.

Roche also sees further growth potential for the medicine in colorectal and lung cancer in Europe.

But researchers highlighted on Tuesday the side-effects linked to the drug, which is already used to treat types of lung cancer, advanced colorectal and kidney cancers.

Roche also said it had dropped the development of diabetes treatment taspoglutide, ending its partnership with French drugmaker Ipsen.


Roche, which recently said ThyssenKrupp's finance chief Alan Hippe would take over as its CFO, will slash thousands of jobs over the next two years as part of a far-reaching cost-cutting program aimed at offsetting pipeline disappointments and tough industry conditions.

The Basel-based drugmaker, once seen as the darling of the pharma sector, flagged cancer drugs such as RG7204 for the deadliest form of skin cancer and pertuzumab in breast cancer as its brightest near-term prospects.

Pharma chief Pascal Soriot also told Reuters that Roche could file cholesterol drug and blockbuster hopeful dalcetrapib for regulatory approval in 2013 and that it was looking to file lung cancer treatment MetMab for approval in 2014 before launching it a year later.

Recent positive data on RG7204, which Roche is aiming to file for approval in the second half of the year, reminded markets the group still boasts one of the strongest pipelines in the industry and remains a leader in cancer treatments. Roche is hoping to launch this drug late next year or in 2013.

(Editing by Dan Lalor, Jon Loades-Carter and Alexander Smith)

($1 = 0.9607 Swiss franc)