By Caroline Copley
BASEL, Switzerland (Reuters) - Swiss pharmaceuticals firm Roche beat first-half profit forecasts as strong sales of its mainstay cancer drugs and some new treatments supported its view that it can withstand competition from cheap, copycat drugmakers.
The results also stoked speculation the group might hike its dividend, buy back shares and make more acquisitions as it looks to diversify from its core expertise in cancer.
Chief Executive Severin Schwan told reporters the firm had always focused on dividends rather than buybacks as a way of returning cash to shareholders and it would continue to look for bolt-on acquisitions of interesting technologies and products.
But he declined to comment on reports it has been seeking financing for a potential bid for Alexion Pharmaceuticals, which would mark a shift into treatments for rare diseases.
Schwan said price was just one factor the company took into account when considering a bid.
"Of course the price plays a role. But the starting point is how it fits into our organisation," Schwan told reporters, adding that pharmaceutical companies were currently commanding very high prices.
Pharmaceutical firms face a crackdown on healthcare spending by cash-strapped Western governments and growing competition from cheap, generic drugmakers as many of the established medicines lose patent protection.
Roche Holding AG, the world's largest maker of cancer drugs, is developing so-called "follow-on" drugs that it hopes will replace or breathe new life into older treatments.
That strategy was given a boost on Thursday, with Roche reporting a healthy uptake of new breast cancer medicines Perjeta and Kadcyla.
The Swiss group has also benefited from setbacks at potential challengers. On Thursday, Teva and Lonza said they were discontinuing a venture to develop so-called "biosimilars," the latest competitor to halt or delay projects due to high costs and complications.
Shares in Roche, which have fallen 9 percent since May when they peaked at 258.6 Swiss francs, were up 1 percent at 1140 GMT versus a 0.4 percent rise in the broader European sector.
"Roche trades at a justified 15 percent premium to the EU Pharma sector as it boasts a very visible double-digit earnings growth profile," Kepler Cheuvreux said in a research note.
Roche said its first-half sales rose 4 percent to 23.3 billion Swiss francs ($24.9 billion), generating core earnings per share (EPS) of 7.58 francs, up 10 percent.
That compared with analysts' average forecasts for sales of 23.29 billion francs and core EPS of 7.35 francs in a Reuters poll.
Analysts at Jefferies and Bernstein said the results were helped by better-than-expected operating costs and lower financial expenses.
Sales at Roche's main pharmaceuticals business rose 4 percent to 18.16 billion francs, boosted by a 12 percent jump in sales of Avastin, due to strong demand in ovarian and colorectal cancer, and a 33 percent surge in sales of rheumatoid arthritis medicine Actemra.
In its smaller diagnostics division, sales grew 2 percent as solid demand for clinical laboratory tests helped to offset a poor performance in diabetes care, where sales fell 5 percent due to stiff competition and pricing pressure.
Roche expects full-year sales to grow in line with 2012 when they rose 7 percent, and core earnings to rise ahead of revenues. It expects to further increase its dividend in 2013.
Some analysts have said Roche's guidance is conservative and expect the advent of new expensive cancer drugs, as well as the company's pledge to keep a lid on research spending, to drive a double-digit percentage rise in core earnings this year.
That, coupled with the fact its net debt to assets ratio - currently at 22.9 percent - is expected to be back within its 0-15 percent target range by the end of the year, has fuelled speculation the firm could step up acquisitions.
However, some analysts note that Roche's efforts to diversify have not always met with success. Earlier this month, it decided to halt development of a diabetes drug, the latest high-profile setback in the area of cardio metabolic disease.
Schwan said Roche was still reviewing its research activities in this area, but added that the group did not have that many projects in cardio metabolic disease. He stressed that Roche was committed to research and development in Switzerland.
Among its newer drugs, Roche said sales of Kadcyla, a treatment for an aggressive form of breast cancer which won U.S. approval in February, were 65 million francs in the second quarter, which Kepler Cheuvreux analysts said showed "phenomenal growth."
The company plans to use Kadcyla with fellow new medicine Perjeta, which is already approved in combination with its third-best seller Herceptin.
On Tuesday, Roche said its experimental leukaemia drug GA101 beat its older product Rituxan, also known as MabThera, in a late-stage trial, prompting hopes it has a viable successor to its top seller, which goes off patent in Europe at the end of this year.
"We feel quite good about being able to replace MabThera by the time biosimilars come," said Dan O'Day, head of Roche's pharmaceutical division.
(Editing by Mark Potter and David Cowell)