Roche Looks to Buy as Its Cash Recovers
Departing Chairman Humer Says Debt Pay-Down Offers Opportunities
Roche Holding AG RO.EB +1.16% will have more flexibility to pursue acquisitions in the coming year as the Swiss drug maker pays off the bulk of debt from its $47 billion buyout of Genentech.
Franz Humer plans to step down Tuesday after 13 years as Roche chairman. European Pressphoto Agency
The company—which walked away from a proposed $7 billion deal to buy gene-sequencing group Illumina Inc. ILMN +0.87% in 2012 to avoid overpaying—would continue to look at external opportunities for investment, departing Chairman Franz Humer told The Wall Street Journal.
Roche generated 16.4 billion Swiss francs ($18.6 billion) in free cash flow last year, and analysts expect it to return to a net cash position in 2015.
"I think the accumulation of cash adds to the strategic flexibility that Roche is gaining—strategic and financial flexibility," Mr. Humer said.
"Any acquisition needs to make scientific sense, it needs to make strategic sense and it needs to make financial sense. We don't need to spend that cash," he added.
A Swiss-Austrian and a lawyer by training, Mr. Humer is expected to step down Tuesday after 13 years as chairman of Roche and 10 years as its chief executive, from 1998 to 2008. Mr. Humer, 67 years old, will remain chairman of Diageo DGE.LN +1.25% PLC and a nonexecutive director at Citigroup Inc. C -2.10% Christoph Franz, chief executive of Deutsche Lufthansa AG LHA.XE -0.72% , is set become Roche's new chairman this week.
Mr. Humer revived Roche's fortunes around the turn of the millennium, selling its vitamin division after a price-fixing scandal and turning the company into a cancer and personalized-medicine specialist through the acquisitions of diagnostics group Boehringer Mannheim and biotech group Genentech.
Now the world's largest drug group by market capitalization, at 233 billion Swiss francs, Roche reported a 17% rise in earnings to 11.16 billion Swiss francs in 2013. The results got a boost from sales of cancer drugs, which are four of its five best sellers.
But in recent years, Roche has faced more competition to its leading cancer franchise. Rivals have been attracted by good success rates in regulatory approvals and the high prices they can charge for new drugs.
Analysts see Bristol-Myers Squibb Co. BMY -0.52% and Merck MRK -1.00% & Co. as ahead of Roche in developing new immunotherapy treatments, which use patients' immune systems to fight cancer.
"We probably have a bigger know-how and timing advantage in oncology compared to many of these companies that have only ventured into biologics in the last few years," Mr. Humer said. "I don't believe we are behind on immunotherapies. What combinations of drugs will work, the side effects, is it going to work in every cancer—all that needs to be defined."
Basel-based Roche is trying to lessen its reliance on cancer drugs, with Mr. Humer touting ophthalmology, asthma, multiple sclerosis, immunology and central-nervous-system diseases as some promising areas.
Yet, Roche's research-and-development efforts have suffered a number of setbacks, including the cancellation of a diabetes drug and one designed to boost the level of so-called good cholesterol. A schizophrenia treatment also recently failed to meet its main goal in two late-stage clinical trials.
Roche's mixed R&D track record outside of oncology has led to questions over its decision to maintain three separate research hubs that often work on the same disease areas. Productivity has come into focus as many of Roche's top-selling products come from the labs of only one of the centers.
"I'm a proponent of different research sites in different parts of the world that can compete," Mr. Humer said. "You have to tap into different cultures. I feel confident this is the right approach."
Mr. Humer also said he saw "no need" for Roche to offer to buy back the stake that its crosstown rival Novartis AG NOVN.VX +1.25% holds in the company. Novartis holds 33% of Roche's roughly 160 million voting shares, having started to build the position in 2001 with the idea of a merger. Roche has about 703 million nonvoting shares.
"I'm perfectly happy with the shareholding structure," Mr. Humer said. "There's nothing proactive we could do. We are fiercely independent, we will continue to be fiercely independent."