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Roche takes knife to costs, slashes 4,800 jobs

ZURICH (Reuters) – Roche Holding AG (ROG.VX) set out plans to slash costs on Wednesday, joining Big Pharma rivals with a wide-ranging restructuring program as it grapples with recent product setbacks and mounting pressure on prices.

The Swiss drugmaker said it would hack 2.4 billion Swiss francs ($2.4 billion) from annual costs from 2012 onwards, with 1.8 billion francs of savings expected next year.

Investors had been looking for cuts of at least 1 billion francs with some analysts hoping for more than 2 billion.

"The disclosed savings target of 2.4 billion francs per year from 2012 onwards is a positive surprise. The great majority of market participants expected Roche to announce savings of 2 billion francs," said DZ Bank analyst Thomas Maul.

The group's stock was indicated to open 0.5 percent higher, according to premarket data provided by Clariden Leu.

"Roche pessimists had not even expected the company to achieve 2 billion francs in savings. We might see double-digit upside revisions of earnings estimates, a clear improvement of sentiment and a very positive share price reaction today," Maul said.

Until now, the world's largest maker of cancer drugs has been alone among major European pharmaceutical companies in not implementing any significant cost-cutting in recent years.

But events have caught up with the Basel-based group this year, following a series of setbacks for its top-selling Avastin drug, used to fight a range of cancers, and disappointments for once-promising new drugs in its pipeline.

Its stock has fallen nearly 19 percent so far in 2010, making it the worst performer in the global large-cap drugs sector and piling pressure on Severin Schwan, chief executive of the family-controlled business, to deliver more value for investors.

JOB CUTS

The group will slash 4,800 jobs worldwide, or about 6 percent of its current workforce of around 82,000, over the next two years, with the largest reductions planned in sales and marketing and in manufacturing.

Most of the planned job cuts will be in Roche's pharma unit, particularly in the division's global sales and marketing organization, and in manufacturing after the setback of diabetes medicine taspoglutide and structural adjustments in the primary care sales business.

"This is a comprehensive, focused initiative to reinforce Roche's long-term innovation capability in the face of increased price pressures and a more challenging market environment," Schwan said in the statement.

"If Roche's program succeeds, the company will increase its profit by around 20 percent to 25 percent per annum. Given the low valuation, we see upside potential," one Zurich-based trader said.

The group expects restructuring costs of 2.7 billion francs from 2010 through 2012, of which 1.5 billion francs are cash-related.

Roche, once the darling of the pharma industry, is trading at around 10 times 2011 earnings, at a slight discount to cross-town rival Novartis (NOVN.VX), which is due to give investors an update on its pipeline later on Wednesday.

Roche announced a group-wide "operational excellence" drive in September, as a result of global pressures to curb healthcare costs and setbacks in late-stage development projects. It said at the time it would give details of cuts by the year-end.

($1=.9932 Swiss Franc)

(Additional reporting by Ben Hirschler in London; Editing by Jon Loades-Carter)