Roche Cuts Down R&D Activities


Roche Holdings Ltd. (RHHBY) recently announced that the company is closing its site in Nutley, New Jersey. The company intends to consolidate the respective research and development (R&D) activities in Switzerland and Germany.

The move by Roche is directed at allocating more resources to expand its product portfolio. Roche is expected to reduce around 1,000 positions as a result of the closure of its US site in Nutley. Business operations transfer in Nutley would be completed by the end of 2013.

Roche will still retain its Pharmaceuticals Translational Clinical Research Center in the US East Coast with approximately 240 positions. It is expected to be operational in early 2013.

The company is consolidating the respective R&D activities in Basel and Schlieren (Switzerland) and Penzberg (Germany). Roche believes that it will be able to keep R&D costs stable despite the increased number of clinical development projects in the recent past.

Roche still sticks to its financial guidance for 2012 published earlier and continues to expect total revenue and revenue from the Pharmaceuticals Division to grow in low to mid-single-digits in 2012. Sales from the Diagnostics segment are expected to surpass market growth.

Performance of the Pharmaceuticals segment should be driven by new product launches and Roche’s diversified product portfolio. Moreover, the company anticipates earnings to experience high single-digit growth in 2012.

Roche also announced that Jean-Jacques Garaud, head of Roche Pharma Research and Early Development will be leaving the company. Mike Burgess will act as the head of Roche Pharma Research and Early Development for the time being.

Our Take

We believe Roche’s decision to streamline its R&D activities is encouraging. We are also encouraged by the company’s decision to shut down its site in Nutley and to divert its focus on the development of pipeline candidates with higher potential. Roche carries a Zacks #3 Rank (Hold rating) in the short-run.

Notably, in May 2012, Roche announced negative data from the second interim analysis of the dalcetrapib dal-OUTCOMES phase III trial. After the disappointing results the company decided to terminate the trial and other studies in the program.

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