The removal of the currency cap on Swiss franc against the euro continues to worry business leaders, and Roche Holding Ltd. (ADR) (OTCMKTS:RHHBY) is one of the companies concerned exchange rates. The company has already warned that rising franc will erode earnings this year, but why isn’t the company leaving Basel?
Roche Holding Ltd. (ADR) (OTCMKTS:RHHBY) expects unfavorable currency translation to adversely impact sales by 6% and profit by 9% in 2015. However, the company still expects to register sales and profit gains this year despite the tough foreign exchange environment.
Finding best scientists
Although Roche acknowledges the higher cost environment in Switzerland, the company does not intend to relocate from Basel to mitigate the impact of high costs. According to the company’s Chairman, Christoph Franz, the challenges of costs and exchange rates are easier to deal with compared to finding the best scientists. That explains why remaining in Switzerland amid unfavorable exchange rate and cost environment makes sense for Roche.
Because the company has no intention to move away from Basel, the CEO, Severin Schwan, said their focus will be on improving productivity. Roche has in the recent months been trying to diversify its revenue sources by expanding to some other disease areas. The company acquired California-based InterMune last year for $8.3 billion to enable it to diversify into lung treatment area. Roche’s focus has mostly been on cancer treatment, and the company is the largest seller of cancer drugs in the world.
Roche Holding Ltd. (ADR) (OTCMKTS:RHHBY) suffered a number of setbacks in 2014 where one late-stage trial failed to yield desirable results while another was discontinued. Kadcyla, a treatment for breast cancer, didn’t turn better results than an existing therapy. Gantenerumab, a drug candidate for Alzheimer’s disease, was stopped.
Following the setbacks and the fact that the oncology field is increasing becoming competitive, Roche Holding Ltd. (ADR) (OTCMKTS:RHHBY) needs to do more this year to grow revenue and earnings.
Earnings and revenue
Roche Holding Ltd. (ADR) (OTCMKTS:RHHBY) posted 16% drop in 2014 profit compared to a year earlier, the first time in three years that the company failed to increase annual profit. The impact was caused by various charges, debt restructuring and unfavorable exchange rates. Net income for 2014 came in at 9.33 billion Swiss francs, below the consensus estimate of 11.54 billion francs.