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Executives

Severin Schwan - Chief Executive Officer

Pascal Soriot - Chief Operating Officer, Pharmaceuticals Division

Daniel O‘Day - Chief Operating Officer, Roche Diagnostics

Alan Hippe - Chief Financial Officer

Karl Mahler - Head, IR

Analysts

Michael Leacock - RBS

Sachin Jain - Merrill Lynch

Eric Le Berrigaud - Bryan Garnier

Alexandra Hauber-Schuele - JPMorgan

Tim Race - Deutsche Bank

Jack Scannell - Sanford Bernstein

Keyur Parekh - Goldman Sachs

Gbola Amusa - UBS

Andrew Weiss - Bank Vontobel

Amit Roy - Nomura

Vincent Meunier - Exane BNP Paribas

Marcel Brand - Cheuvreux

Gavin MacGregor - Credit Suisse

David Evans - UniCredit

Roche Holding Ltd. (OTCQX:RHHBY) Q3 2011 Earnings Call October 13, 2011 8:00 AM ET

Operator

Good morning or good afternoon, depending where we are attending from. I am Myra, the Chorus Call operator for this conference. Welcome to the Roche’s Third Quarter 2011 Conference Call. Please note that for the duration of the presentation all participants will be in listen-only mode and the conference is being recorded. (Operator Instructions) This call must not be recorded for publication or broadcast.

At this time I would like to turn the conference over to Dr. Severin Schwan, Chief Executive Officer. Please go ahead, sir.

Severin Schwan

Good afternoon, good morning. Let me start off on page five with the key results for the first nine months. Sales on track for the full year. There is 2% increase of the underlying business. We have seen at the same time a significant impact by the strengthening of the Swiss franc by 13% and we confirm our EPS growth target for this year which we have increased to around 10% at half year in view of the good progress of our productivity measures.

Let me also emphasize that we made significant progress in our product pipeline with seven clinical reading out positively during the first nine months. Based on the data we have already launched Zelboraf in the U.S. in a record time in August as you know and we had in the mean time filed our hedgehog inhibitor in basal cell carcinoma. For Avastin we have received positive recommendation of CHMP in Europe for first line metastatic ovarian cancer and we also received the approval for metastatic breast cancer in Japan.

Turning to page six, pharmaceuticals excluding Tamiflu up by 1% inline with the market. Diagnostics continues to outgrow the market with 6%. As you can see on page seven, a significant impact of the strengthening of the Swiss franc, 13% or 4.8 billion Swiss francs for the first nine months. Just for reference, if we would report in U.S. dollars, as most of our competitors do, sales would be up by 6%.

Let me also comment on the regional performance on page eight. Typically, we report our pharma sales for U.S., Western Europe, Japan and a category which we call international. On this chart we split out international for pharma in Latin America, Asia, Western Europe and Easter Europe, Africa, the region we call CEMAI. And you can see very different dynamics in the respective regions. Strong double-digit growth in Asia Pacific and Latin America. A more moderate growth in the U.S. and continuous price pressure in Japan and in particular in Europe with austerity measures. And in addition we had specific impact in Japan with the earthquake in the first quarter -- second quarter, and in North Africa with the political turmoil there.

As I said earlier significant progress in our product pipeline with seven late stage clinical trials reading out positively. On page nine, let me specifically mention the recent presentation of T-DM1 data at ESMO which has been extremely positive we received by the medical community as well as pertuzumab where we announced first year phase III top line results recently and where we look forward to sharing detailed results with you in San Antonio beginning of December.

As to the ongoing austerity measures, Roche has actually been less effected with its highly specialized innovative portfolio. On a global basis we expect about 1% impact on sales for the full year from the healthcare reforms and austerity measures in pharma.

Before we conclude with the outlook let me also take the opportunity to mention again, actually the third year in a row we have been recognized as the global leader in healthcare in the Dow Jones Sustainability Index, something we are very proud of as an organization.

Based on the solid sales results as well as the diligent implementation of our various productivity measures, we are now confident to confirm our core EPS growth target for around 10% for the full year. And with this introduction, Pascal over to you.

Pascal Soriot

Thank you, Severin. Good morning and good afternoon everybody. We will start on page 14 where you see that excluding Tamiflu at the end of September year-to-date, our growth rate was, for the pharmaceutical division was 1%. And you see the impact here of Japan declining by 2% on a year-to-date basis. At the bottom of the chart you see the quarterly growth rate and excluding Chugai, excluding Japan, our growth rate in Q3 remained consistent with the previous quarter at 1%. And we can come back later during the Q&A if you wish on the Japanese situation you see here. What we believe is a one-off effect in Q3 of the minus 5% decrease essentially the impact by the -- effect, the consequences of the earthquake in Japan.

On page 15, you can see that our growth rate varies by region. Western Europe shows a decline of 4% essentially due to the austerity measures and the impact of Avastin in breast cancer which is much less than in the U.S. in fact, but still had an impact. Actemra is still growing in Western Europe and we are very happy with the results of this launch.

In the United States our growth rate is 1% driven by Rituxan, Actemra and Lucentis. Avastin in breast cancer has very substantially declined following the debate around the breast cancer indication. We believe we are close to leveling off now in breast cancer in the United States. And the good news is as we predicted, the Pegasys sales in Q3 have shown a very strong growth following the launch of Telaprevir and Boceprevir. And we expect the same to actually take place in Europe and the rest of the world as decisions become approved and reimbursed.

In the emerging markets we saw a growth rate of 6% essentially driven by Latin America and Asia Pacific and again we can talk about this further during the Q&A. And in Japan as I said, the price cuts that we experience every two years impacted us for the first few months of the year but essentially which is in Q3 is a disruption of our sales activities and our ability to supply the marketplace as a result of the earthquake.

Moving on to page 16, we represent here the growth rate in what we call the E7, the emerging seven. The major seven markets in the emerging regions. And you can see here an accelerated growth but this year and last year compared to prior years and essentially driven by China where we have excellent results, at the end of September we were growing by a little bit more than 27% in China. So very strong growth rate.

On page 17, you see here the representation of our growth by product. And clearly the growth is driven by Herceptin, MabThera, Lucentis and the newcomer Actemra. This you would have expected when you saw in the prior year of course. But what is not expected, what is new to 2011 is the decline of Avastin which as also we predicted to see declines by 500 million due to the U.S. and Western Europe at the end of September with growth experienced in Japan and international. But overall we are declining by 8% with Avastin.

You also see still decline of Pegasys, even though we are starting to grow in the U.S. So far this year the warehousing of patients is still impacting the growth rate of Pegasys and it should turn around over the next few months. The last point I would like to attract your attention to on page 17 is the blue part of the Herceptin bar and MabThera bar. You can see here the increasing importance of the emerging markets, what we call international here. That is really driving very much the Herceptin sales, a little bit less the MabThera sales because the MetMAb is still having a substantial impact on U.S. turnover. But as time goes by over the next few months, we certainly, we see an increasing importance of this emerging markets.

Page 18 is trying to give you an idea of the impact that the special effects of 2010, essentially the austerity measures in Europe have had on growth rate as well as the Avastin metastatic breast cancer debate. We can see here our growth rate on a quarterly basis, the red line represents 2010 and the blue line 2011. And you can see that in Europe we started Q1 at declining rate of 4.5% to Q3 where it’s 3.6% and we expect a further improvement, in fact quite a nice improvement in Q4 in Europe and globally. Because the impact of these austerity measures will be essentially behind us.

Slide 19 will give you some information of the evolution of our oncology franchise. MabThera/Rituxan as I said earlier is very much driven by the 1L maintenance indication in the United States and the growing importance of the emerging markets. Avastin is declining, I won't repeat the metastatic breast cancer impact and also the Japanese situation. Herceptin is growing essentially due to the emerging market growth in volume. We experienced a growth of about 20%, a bit more than 20% actually across the international region with Herceptin. So very substantial volume growth rate. And you can see also here Xeloda and Tarceva growing by 6% each.

So if I move now to page 20. There are quite some news on Avastin. Some are good and some others are less good. But if I look at this by indication, in the ovarian setting, the great news is we received a positive opinion from the CHMP for the 1st line ovarian cancer indication and we are hoping to receive formal approval in the not too distant future.

I have to say the not so good news is, in the U.S. we must recognize that the likelihood of our first filing first line -- the first line indication is extremely low. We are waiting for an update of the overall survival data but we need to recognize today that the future of ovarian indication in the United States doesn’t look too hopeful.

On the breast cancer side, the great news is we received approval in Japan despite the discussions that are still taking place in the United States. In the U.S. we are still waiting for the decision of the FDA or more specifically the commission there. The breast cancer patient share is starting to level off as I said earlier. We still see a slight decline in Q4 but we hope that in 2012 we will have totally leveled off and breast cancer will be stable. And finally another news in -- with the AVEREL study in combination with Herceptin in breast cancer, we believe that the results we saw in this study will not support a filing. To some extant this is not unexpected as you would imagine. And also I would say that it really allows us to position very firmly pertuzumab in the setting.

I really encourage you to see those results at the San Antonio Congress very soon and you would see clearly that in that setting pertuzumab in combination with Herceptin will make a substantial difference. And it will certainly clarify the management of our portfolio in the future. And finally, very very nice study in lung cancer. With the combination of Avastin together with pemetrexed and we believe that over the next couple of years it should drive our growth in that indication.

Moving to page 21, Lucentis is still growing. 26% growth rate at the end of September. We filed the DME indication in the U.S. only a few days ago. We see a continuous increase in our share in RVO, 25% versus 24% in the previous quarter. In AMD we also see a slight increase in share of patients in Q3 compared to Q2. Even though we are lower in share than we were in Q3 2010, we see a slight increase in Q3 versus Q2, so it’s good news.

And here is not so good news is that the HARBOR study is clearly showing us that high-dose approach with Lucentis will not be an option. We were not able to show the superiority of this high-dose approach and we are still analyzing the data as far as the PRN versus monthly comparison.

On slide 22, you have a representation here of prescription trend with Pegasys in the United States. And as I said earlier, the launch of boceprevir and telaprevir is clearly having an impact on the number of patients being treated in combination. So, you see here a rapid increase of prescriptions of pegylated interferon. And importantly you also see here that the blue line and the red line are getting closer to each other which tells you that our market share is increasing and we indeed have close to 85% share with Pegasys in the United States. Finally, last point or the last news is that we obtained approval for the new Pegasys ProClick disposable auto injector in September and that will help us further drive Pegasys sales.

Okay, so it sounds like we are back on line. I believe we lost the connection when I was on page 23, describing our Actemra results. So, let me start again at that point in time and hopefully we can stay online moving forward.

So, you see here an 86% growth rate at the end of September with Actemra. And I was describing earlier the additional elements that would drive growth in 2012 with the filing of the DMARD IR indication in the United States. We will present at the ACR the ACT X-ray data. We will receive the results of the H2H study versus Humira. We will file for subcu formulation, and those are really new elements, new factors of -- drivers of growth for Actemra next year. Unfortunately, we discontinued the ankylosing spondylitis program. But the good news this year is we obtained approval for the sJIA indication, which has been extremely well received by the medical community.

Page 24, I won't go through this table in details. I think what it tells you really is that this year has been a tremendous year for us from the point of view of progressing our portfolio. We’ve, until recently, I would say we've had 100% success rate with our portfolio. The only negative news lately has been AVEREL and the HARBOR high-dose study. But it is a reminder that 100% strike rate in our industry is neither possible nor desirable because we are innovating and therefore we are taking risks and we are not going to succeed every time. But certainly we are still above the 90% success rate with our program and so this is a very, very positive picture for us.

Slide 25, there’s some news. Some significant news flow in this quarter. First of all, we obtained approval for Zelboraf, in the U.S. as you know, and approval for Tarceva in first-line EGFR mutated patients in the EU. And finally the CHMP positive opinions for first-line ovarian. We filed Lucentis DME, we filed Avastin in second line ovarian and we filed vismodegib in the U.S. and we are now in discussion with the EMA for filing in Europe. And we presented data supporting T-DM1, very exciting data. We presented an update of overall survival analysis for Zelboraf. We presented the MILLY Phase II data for lebrikizumab and finally but importantly both the dal-PLAQUE and dal-VESSEL studies in August supporting dalcetrapib.

Slide 26. Slide 26 I think is really meaningful. Of course, first of all because it refers to a product that will change the way melanoma is treated and the patients have been waiting for this new option for their treatment. But I think it is really meaningful for us as a company because it really shows that our personal healthcare strategy is working. And on this slide you'll see the benefits of that strategy.

First of all, a very, very accelerated development program here, very short. It took us less than five years to go from IND to first launch, and it really shows you that PHC is the formidable lever in terms of improving our R&D productivity. We also had a very fast expanded EAP -- Expanded Access Program, excuse me. Which has recruited so far 800 patients. So, a very, very fast recruitment. So, overall, very fast development and so far very successful pre-launch and launch.

Page 27. We wanted to share with you some of those T-DM1 data again and they were presented at ESMO very recently. And you can see here that potentially the treatment of T-DM1 because of the better tolerance of this reagent could lead to better efficacy versus the traditional regimen combining Herceptin and docetaxel. So, just like many, many opinion leaders in breast cancer we are extremely excited with T-DM1 and look forward to the result of the EMILIA study next year and the MARIANNE study a little bit later.

Finally, on page 28. Just want to attract your attention once more to the major news that we would be announcing this upcoming quarter. First of all, pertuzumab in San Antonio in the Phase III CLEOPATRA study in breast cancer, again very exciting data. We will read the Phase III HANNAH study which looks at our subcu formulation of Herceptin. This is a very important study for us in the lifecycle management of Herceptin. And finally, we would present the Phase II data comparing GA101 with MabThera/Rituxan at the ASH. And I invite you to join us for Roche late-stage pipeline update in London on November 7, where we will present scientific data represented at the ESMO and ERS.

Thank you so much and let me now hand over to Dan O’Day, who will brief you on our diagnostics results.

Daniel O’Day

So thank you, Pascal. Also, from my side, good afternoon, good morning to all of you. The Diagnostics divisions you can see on slide 30 had another successful quarter. Growing overall at 6% year-to-date in constant exchange rates in a market that at least through the half year was growing around 3%. So, as the number one diagnostic company in the world with a 20% share, we continue to drive forward the market with our 6% growth.

When you look at how that growth breaks out on slide 31, you can see that, first off all we grew in all of the regions around the world. The absolute growth contribution came from Asia Pacific, EMEA, and North America more substantially. With very strong strides in Asia Pacific as you can see at 17% growth, and in fact China a significant portion of that, growing at 25%. I am also pleased with the progress in North America, where our market share position has room to continue to grow. On the Diagnostics side, so if you exclude the diabetes care side, we actually grew at 8% there, which is very strong growth in the number one diagnostics market in the world.

Turning our attention to how that growth is delivered by each of our five businesses. You can see on slide 32, just to give you a magnitude of number of launches that we had in the Diagnostics division. We had 17 new product launches in the third quarter alone, and that's contributing significantly to the growth that you see driving across our different businesses.

Professional Diagnostics, our largest business, growing at 9%. And that is also despite some disruption we had in our instrument placements in that business due to the fact that the situation in Japan earlier this year and the fact that many of our instruments are produced by our partner Hitachi. I am pleased to say that we are back on track now with supply and driving our instrument placement strongly in that sector.

In Diabetes Care you can see some very good news, particularly on the U.S. side, where we received approval for the first of our maltose-independent chemistry products. Something we have been waiting for quite some time. We got the approval of the Accu-Chek Aviva Plus and this will also enable us now to file and gain approval for all of the other innovative products we have in our Diabetes Care line that are driving the growth in Europe, in Asia Pacific and in other parts of the world. So, we are very pleased at the Diabetes Care approval in the third quarter

In Molecular Diagnostics we also had a very good news flow. 3% growth driven by the virology business. We had significant launches in the third quarter. BRAF, which I will speak about, KRAS as well, our two companion diagnostic products. And I'll speak a bit about the progress on HPV on a particular slide. What I would say is that with BRAF, with KRAS and with the upcoming launching of EGFR that we expect before the year-end, we have a very nice complement in our Molecular Diagnostics portfolio of companion diagnostic products. And in particular, Pascal mentioned of course the Tarceva first-line approval in Europe, the launch of our EGFR assay will enable us within the Roche Group to continue to expand our personalized healthcare strategy with those two products in the marketplace as well.

On the Applied Science side we continued to have an effect of what was present in 2010 and not in 2011, significant sales in our H1N1 testing market. And from an economic perspective a relatively flat global research funding market is contributing to the lower growth rate there, but we continue to see growth in many aspects of our Applied Science business.

And finally in Tissue Diagnostics, the second major overall growth driver on a percentage basis with 15% growth. We launched 11 new antibodies in the quarter and those contribute to the continued growth of our platform and reagent strategy out there in the marketplace. And very importantly we closed our MTM acquisition that we announced at the half-year, which is an innovative new way of looking at diagnosis of HPV in conjunction with our world leading molecular diagnostic assay. Which allows us to really look at changing the way that cervical cancer is in fact diagnosed and contributed to the prevention of that in the future.

On slide 33, our largest business again growing at 9%. You can see the makeup and what's driving that growth with our Immunoassays business growing at 13%, Clinical Chemistry at 6% and our point of care business growing at 7%. All strong growth contributors. Immunoassays becoming more and more important in our organization. And that is now on an annualized basis a CHF2 billion business that has grown at a double digit rate for the past 10 years. Shows the strength of the model of placement strategies out there and the reagents on the instrument based business.

Very well moving in the immunoassay business is the Vitamin D. Total Vitamin D tests that we introduced in the second quarter of this year in Europe and rest of world which is helping to drive that 13% growth on an overall basis.

On slide 34, it's something I've spoken with you about many times which is in Europe in particular with HPV. We feel the opportunity is most significantly in primary screening. The U.S. has adjunct screening, it has ASCUS screening where two tests are used. And in Europe my view of the market is that the opportunity exists for HPV DNA screening in the area of primary screening.

And I’m very excited to say that Roche won the first tender that took place in Europe, in Sweden. It was a 100% win of that tender to look at primary screening in first the pilot program over the next three years, which will allow us to get very significant data there and then expand that into more routine use. And it's the specific advantages of the Roche system being able to identify 1 out of 10 women that are missed with PAP alone, specifically with the Roche test because of our 16 and 18 genotyping that helped us to win that particular tender.

And although I can't predict the rate of progression of this, I think the concept of one European and multiple European countries moving to primary screening will eventually change the practice of cervical cancer screening all throughout Europe.

And then on slide 35, Pascal already mentioned in many aspects of the advantage of the PHC strategy coming to life now in 2011 in a very practical way out there with our customer base with Zelboraf. He mentioned the opportunity to decrease development times. And now, we're in a joint commercialization program of the companion diagnostics being within the Roche Group enabled us, allowed us to get approval of Zelboraf in the United States, where the draft guidelines recently indicated that you must have an IVD companion diagnostics approved with your targeted therapy.

And we were able to work effectively with the FDA, two different parts of the agency, to be able to bring these two products to the marketplace at exactly the same time. And we're now in the process of leveraging that in the marketplace with our joint sales forces. Both out there with common messages about the benefit of Zelboraf of course to patients and the benefit also to patients of using our BRAF test which is highly predictive.

And we showed in our studies, it allows you to identify 20% additional patients that would have been missed by sequencing alone. Which were patients with melanoma is obviously a major advance in medical care and in medical practice which we're looking forward to rolling out and playing a role in. And that was supported and identified by one of the largest labs in the United States LabCorp, which will exclusively offer our test, our BRAF test moving forward.

Finally, on slide 36, just to reiterate. we stand firmly behind our guidance for the year, to close the year 2011 again above the market growth. We’re on target with our key launches that we’ve committed. And I look forward to any questions that you may have when we come to that point. At this point in time, I would turn it over to Alan Hippe to cover the financial portion. Alan, over to you.

Alan Hippe

Yes, thanks, Dan. Thanks for the introduction and the nice handover. This is sales call and I think everybody is aware of it, so just a couple of highlights from my side. First of all, I think we have started a small action to optimize our balance sheet. We launched a tender offer on Monday to buyback some Swiss francs due in March 2012. We will have a small negative impact in the P&L of up to minus CHF10 million. It's just an optimizing measure we are doing.

The second point I would elaborate about the credit rating, we got an upgrade from Moody's from A2 to A1, with a stable outlook, which is quite a step. Well, what we are doing is and it was mentioned also in the media, we are carefully monitoring our receivables, particularly in the Mediterranean countries. We have a tight monitoring established of our DSOs and have action plans region by region to avoid surprises in these areas.

And last but not least, on the highlight slide, on track to deliver operational excellence. That means, we are well on track to get our savings of CHF1.8 billion realized in 2011. And that said, that looks very, very promising at the moment.

With that I would like to go to the next slide, which is slide 39. And on 39, an update what happens on the currency side. And the exchange rate impact on the sales growth is quite significant in Swiss francs as you have seen. When you start at the left hand side of the chart you see in fact our growth that we have reported, including Tamiflu. And the next one is the impact coming from the U.S. dollar when you compare the average September '11 year-to-date rate, which is the average September '10 year-to-date rate in the U.S. dollar. You have seen a minus 18% decline in the U.S. dollar. So, it is when you multiply that with the 35% sales portion that we have in the U.S. dollar you get to a minus 6.4%.

Same applies certainly to the euro, which represented two most substantial impact when it comes to currency, and then certainly when you go to the right hand side you see the minus 12.8% which is the impact year-to-date on our sales line.

With that I would like to go to the next slide which is slide 40, and there you see the currency impact on the Swiss franc results. So I have elaborated about year-to-date and here you also see our forecast and assuming that September 30, 2011 exchange rates remain stable until year-end, you see the impact coming on the full year.

On the sales side, we don't expect much of a change in case of impact, so remain with the minus 12%. So, that’s a certain smoothing of the impact. As you can see on the left hand side of the chart that the changes are not so significant anymore until year-end and they have not been last year. And when you look at the cooperating profit, it's a minus 15%, and certainly on the core EPS line it would be a minus 14% assuming that the Swiss franc ratios are not changing.

With that I'd like to go to the next slide, which is 41 and elaborate a little bit about our net debt on total assets ratio. And the first thing I would like to mention here is that Roche has a relatively strong credit rating despite a relatively high debt level in the industry. And when you look at the chart, which is a little bit busy admittedly, and you see on the left hand side, the left hand bars of the Y-axis, you see the S&P rating and on the X-axis you see the net debt on total assets ratio. And you see really is that Roche is positioned on the right hand side so evidently with a high debt burden. But when you compare it then to the rating that we are having, I think that looks very promising compared to the industry. And you see another thing, that the bulk of the industry is in fact between minus 15% net debt on total assets up to 15% on total assets. Certainly the minus number means these companies are net cash positive.

So, very clear, we have a very good rating compared to the debt levels. And when you then look here what Moody's has said when they had given us the upgrade from A2 to A1 with a stable outlook, I think that there are a lot of things mentioned, which really apply not just to the debt holders, they also apply certainly to the equity holders. Because, well, we have a solid deleveraging in place, but we also have a very comfortable exposure to our patent expiries. And on top of that we have a relatively high visibility of future cash flows, that's what they are saying.

So, evidently, that looks like a relatively robust set up. What we are targeting on is certainly to be in a range between 0% to 15% net debt on total assets. There is still a way to go. We are roughly at about 30% net debt on total assets as of today.

When I go to the next slide, slide 42, then I would like to reconfirm the outlook once again. I think a lot has been said about sale, as said in operational excellence savings. Pretty confident that we get to the CHF1.8 billion in savings. So, this is really moving as planned and as expected and therefore we remain certainly committed to our target to deliver around 10% EPS growth this year.

And also, when you look at the dividend we have said there that we would like to maintain at least last year's dividend in Swiss francs, which might implicitly mean that the payout ratio goes up when the Swiss franc remains where it is today.

With that, I am happy here to introduce the Q&A and I think we are all happy to receive your questions. Thanks a lot.

Question-and-Answer Session

Operator

(Operator Instructions) The first question is from Mr. Michael Leacock from RBS. Please go ahead, sir.

Michael Leacock - RBS

Good afternoon. Thank you very much for taking my call. Just a couple of questions really. Firstly, on slide ten, as you have mentioned accounts receivables, I know it's a sales call, but might I just ask three questions relating to your accounts receivables. How much have you actually sold, particularly in Greece and I think in Southern European countries, because I believe Greece has been paying you in a Greek government bond, but only some of your accounts receivables have been paid. I think it was something like 30% for December this year.

So, how much of your Greek accounts receivables are there, how much have been paid? And I believe you then sold the Greek government bonds at some material discount. Does that 50 million valuation include whatever discounts you might need to apply to the Greek bonds? And secondly, if I might ask, just briefly on the diagnostics, Daniel, the coagulation monitoring sales at 14% is very strong, particularly given the new oral medicines. Is that just related to the product upgrade or are there some volume and then price elements within that 14% growth, please?

Severin Schwan

Thank you, for the question. Alan, do you want to cover the question on the accounts receivable and then we hand over to Dan for the Diagnostics question.

Alan Hippe

Yeah. Well, I think in the Greece situation we have sold a bond of or let's say we received a bond of roughly 400 million, we sold it then with a discount of 26% and that has been the effect. There is not a lot left here of exposure in Greece. So, Greece from our point of view is in a very positive situation and you might have taken from the media that we have established quite some cash on delivery measures over there in Greece and I think from today's point of view we feel comfortable in this country.

Daniel O’Day

And, Michael, from my side, thanks for the question on coagulation monitoring. I think there is a couple of dynamics in that marketplace that are important to know. The first one is that actually the penetration rate of testing and self testing in coagulation monitoring is still quite low. It's less than 50% in most of our markets. So, there is still a significant market potential increase simply by taking and converting people to home testing of Warfarin. And we are seeing that continue to increase significantly in most of our major markets.

The other thing is that, despite the introduction of new therapies in this area, Warfarin being a generic product and really the very effective management of patients that are able to be handled by Warfarin, the vast majority of the patients in self testing, it’s still a very strong health economic argument overall for the use of generic Warfarin combined with home testing of coagulation. So, we continue to be very bullish on that segment. We think there is a lot more growth to come from that. It's not an overly price sensitive area just to comment on your price question. And I think it's an area we continue to invest in to penetrate that market further.

Operator

The next question is from Sachin Jain from Merrill Lynch. Please go ahead.

Sachin Jain - Merrill Lynch

Hi, thanks for taking my questions. A few please. Firstly, just a quick one on Japan. Have you seen an inflection in growth late in the third quarter, early fourth quarter, just to give us some comfort that you are seeing a turnaround there? Secondly, on Lucentis and the HARBOR data, is the PRN data you’ve seen, directionally different from what was seen in CATT, is there any cause for concern there?

And then any views on Lucentis PRN versus Eylea PRN data that is due out from the VIEW study by year-end and how that might affect the competitive landscape into next year? And then just a final question on the balance sheet, some very clear comments. I just wanted to make sure my interpretation was correct. If you move to roughly 15% leverage, does that equate to net debt roughly around 10 billion, which I guess you get towards the end of next year? And if that's correct, what is the intention of cash flow thereafter? Thanks.

Severin Schwan

Pascal, you take that for Japan.

Pascal Soriot

Yeah, Japan, essentially -- Sachin thanks for the question -- our hope is, our goal now is to see a growth rate in Q4. Now, it is difficult to predict how much and in fact we will not give any guidance in any case, but we believe that what we saw in Q3 is now essentially behind us. The supply disruptions we have been experiencing are almost over. There is still couple of products that would be disrupted until mid-November, but by and large it’s behind us. And the important thing is that the sales force which has been distracted a lot over the last few months, apologizing to customers and ensuring supply gets to hospitals, is now going to be able to refocus on promoting our products.

A number of congresses, conferences were cancelled. Our shareholder voice from a detailing view point dropped dramatically and all of that had an impact on our sales and utilization of our products as you can imagine. The quarter, I have to say, was also impacted negatively by Herceptin, which grew 30% in quarter two and declined, I go from memory about 23% in quarter three. And that is essentially because a number of hospitals following the earthquake decided to increase their inventory of Herceptin, because they didn't want to run the risk of being out of inventory. So, you have this shift from quarter-to-quarter that impacted Q3 quite negatively from an Herceptin view point, and of course, from an overall sales view point.

So again, we are hoping that Q4 will look better. As far as Lucentis and HARBOR study, I cannot comment on the PRN monthly data, because as I said a bit earlier we are still analyzing this data. So, unfortunately, you'll have to wait another couple of weeks maximum until the AAO and those data together with our interpretation will be presented there. And we are not aware of -- at this point of any comparative study with a competitor that would be coming up.

Sachin Jain - Merrill Lynch

Just a follow-on to that Pascal. My understanding is that two-year extension of the pivotal Eylea data is due out by the year-end, which is a PRN comparison of Eylea versus Lucentis?

Pascal Soriot

Okay. So I thought you were referring to a new study. So, the extension, the two-year extension should read out in the not too distant future. I'm not exactly sure when precisely, to be honest. I don't recollect, but it's in not too distant future. But I may have misunderstood your earlier question, I thought you were talking about the new study.

Severin Schwan

Alan?

Alan Hippe

Yeah. The balance sheet question. We expect certainly the question, once we get in this 15% territory. And first of all I have to admit the 10 billion is certainly not a bad figure, that's a ballpark figure, but not a bad figure. And we can speculate now a little bit here once we get really into that 15% territory, because certainly it’s also dependent on the currency rates. That plays a major role here, but really I think what you have said is perhaps a little bit ambitious.

Sachin Jain - Merrill Lynch

Sorry, in terms of what?

Alan Hippe

You said when we reach that number and I remember you said end of next year, correct?

Sachin Jain - Merrill Lynch

I was saying towards the end of next year into 2013 and what the intention of cash flow was once you had got to a 10 billion type number?

Alan Hippe

Well, first of all I think that's not a very bad estimate, and it will be around there, could be, well. The other question is, look, I think we have given already quite some guidance on how we deal with the dividend. So that's one thing. And I said implicitly how we ramp up the payout ratio. I think we have given also indications how we see share buybacks and we have definitely not a preference for share buyback here and very clear. I think we've given indication once we get into a certain territory, and as Severin said at our half-year presentation, we are going to cross that bridge when we get there.

Sachin Jain - Merrill Lynch

Okay. Thank you, very much.

Alan Hippe

So far deleveraging is quite helpful. As you've seen when it comes to EPS growth momentum the deleveraging really substantiates that momentum.

Severin Schwan

Can we have the next question?

Operator

The next question is from Mr. Eric Le Berrigaud from Bryan Garnier. Please go ahead, sir.

Eric Le Berrigaud - Bryan Garnier

Yes. Good afternoon. Three questions, please. First, on Herceptin in the international territory. You are pleased with the performance over the first nine months, but I guess there is a sudden decline in the third quarter. Could you perhaps elaborate on why growth was almost halved to 9%? Second, Lucentis, here also in the U.S., growth is slowing down. Could you perhaps give us a little bit more details about the consequences of the CATT study, if anything has to be read out from this study? And thirdly, Avastin, your target is still 7 billion, but without ovarian in the U.S. Could you perhaps help us see where the remaining sales could come from on indication by indication basis? Thank you.

Pascal Soriot

Okay. Thank you, Eric. Let me take Herceptin first of all. It is a little bit of a complicated one, I mean the 9% growth rate, I think its 9% in quarter three in the international region that you are referring to, is indeed lower in absolute value compared to the previous quarters. If you look at it in volume, the growth in quarter three was 20%. So we still have extremely high growth rates across the international region, very consistent with what we've experienced in the previous quarters. Now the real problem we have is that in some of those countries we have distributors and we have to protect them against currency fluctuations and we invoice them in Swiss francs and so we've had to adjust our selling prices to them. But it's variable and then if the Swiss franc declines again we'll be able to correct this.

So in overall that way you have the effect of a currency variation on this growth rate but you have to keep in mind the 20% growth rate in volume. So we are very much on track with the previous quarters with Herceptin and international. Lucentis CATT in the U.S., we haven't -- in fact there’s two phases. The first phase is the post CATT phase and then the second is probably what happens in September. The post CATT phase, in fact we have seen an impact of the CATT study that was less than we expected. And in fact in quarter three, our patient share slightly increased compared to the previous quarter in AMD and we continued growing in RVO.

So I would say here the impact of CATT was certainly there, but by far much less than what would have been anticipated. Then there is the September situation where you probably remember a number of events of high infections were reported and investigated by the FDA. And identified as being issues to do with compounding pharmacies. And that has had an impact on the whole prescribing of Lucentis and Avastin and also on -- lead to the then administration decision to stop using Avastin as you probably know. So we've had an increase in prescription of Lucentis and when we look at the outs, what we call the outs are essentially the units used in the market place. We've seen an increase, a further acceleration, a further increase in September.

Now in the last couple of weeks this has actually stabilized again. But certainly, overall, I would say for Lucentis relatively positive picture post CATT. Finally, Avastin the 7 billion we gave you is a number that considers risk factors for various indications and so we actually still believe that we can achieve the 7 billion fixed sales with Avastin. And that will essentially be driven by continued growth in the international region with colorectal and that's the main one in Europe and in the U.S. we probably will not grow so much in colorectal but international region we will.

Two, in lung cancer we have the combination study with Pemetrexed, certainly which will have an impact on the treatment of lung cancer the results are pretty strong. So we expect to grow in lung cancer across the various geographies. Finally, breast cancer should stabilize in the U.S. as I mentioned before. In Europe, actually, we haven't lost much and we have stabilized already. And then last we will, in Europe at least, have the impact of the ovarian indication. And then further after this the TML study hopefully will read out positively. So you can see there is a number of drivers of growth for Avastin.

Severin Schwan

Can we have the next question?

Operator

The next question is from Ms. Alexandra Hauber from JPMorgan. Please go ahead, ma’am.

Alexandra Hauber-Schuele - JPMorgan

Thank you. Good afternoon. For Lucentis, what would be a good average number of infusions on a typical PRN regime? I'm not talking about what was actually the number in the HARBOR study, but just what do you estimate the average number of injections are in year one and in year two? Secondly, on Mircera sales in Japan, the 31 million, is that all stocking? Is there any way you are sort of gauging what is really the underlying demand on that number? Because it seems like a big stocking effect.

And then, two questions to Alan. Firstly, based on the September 30 FX rate, what FX profit would you project for the full year? The reason why I'm asking the question is because looking at the current sales trends, it's obviously hard to get to the 10% growth, and I'm just trying to figure out how much needs to come from financials versus the operating margin.

And then just a question on the tender you launched this morning. Just to clarify, that’s a 2.5 billion Swiss Franc bond with a 2.7% coupon. And just in terms of the philosophy, how do you pick the ones which you want to early retire? And is that just something which you intend to do continuously now as you have that excess cash, you pick among the outstanding bonds which one you could partially redeem early?

Severin Schwan

Pascal, you take us of with Lucentis and Japan.

Pascal Soriot

Yeah, I'll take the Lucentis question and then the second question I am not sure I completely captured. But for the Lucentis question, number of injections is about 7, let's say 6.5, 7.5 depending on the studies you look at. So you could assume about 7. I think your second question -- I am asking…

Alexandra Hauber-Schuele - JPMorgan

And in year two, does that go down to four or does it stay at that level?

Pascal Soriot

So you were saying that year one and year two, is it what you're saying?

Alexandra Hauber-Schuele - JPMorgan

Yes.

Pascal Soriot

Yeah. Well, you would expect -- well, what we've seen is for those patients who stay on the drug more or less around the same kind of number, over time you would expect patients to receive fewer injections. But the data that we have for the short-term over the first one, two years are 6.5, 7, year one. A little bit lower for year two and then it declines after this. Year two you could say 5 or 6 something like this. The second question I think were related to Mircera. Was it about Mircera or --

Alexandra Hauber-Schuele - JPMorgan

Yes, the Japanese numbers seem due. Is that all stocking, and if so, why such a big stocking effect?

Karl Mahler

No, actually -- it’s Karl speaking -- it's not that much stocking. I mean, frankly it would obviously be better if this question is asked to Chugai because, I mean it's in their, let's say, territory and not so much in ours. But what we understood is that the launch was actually, the other round was a little bit delayed by a month because of this earthquake and that they are at the moment very much on track now to deliver on the targets which they have given to Roche. But again, I would say it’s better to ask this question directly to Chugai but from our point of view it’s really ongoing data for us.

Severin Schwan

Alexandra if I may add, this is Severin, what we can say is that we expect a stabilization of the overall sales for Japan in the fourth quarter.

Alan Hippe

Okay. Yeah, Alexandra, on this question about what is let's say the financial results contributing to the EPS growth. I think when you look at half year, here you have seen that the core operating profit had a growth rate of 5%. EPS growth we had of about 10% and to be honest we don't really assume that there is a major change of that momentum until year-end. So I think that fits hopefully also with our guidance and it does.

The tender here that we have exposed, why do we do this? And look, certainly in the second half we ramp up our cash position especially in Swiss francs, yeah, together, everything together to pay the dividend at year-end. And certainly, we have a need here to make use of the Swiss franc. And for us the question is can we really bring that into asset and at the moment that in fact when you bring Swiss franc into assets you get a penalty.

So what we have done is we've taken the cash and buy back Swiss franc bonds. And that was the idea, it is the idea. In fact all we are paying is the coupon, so there is no premium and nothing. And this is a much better deal for us here, then really going for specific assets in the market. That's the reason.

Pascal Soriot

Let me just jump back in quickly -- sorry you had something?

Alan Hippe

Yeah. And certainly as this gives us the positive NPV, I think we are always checking what we have in our basket when it comes to financing, so we also look to other bonds. And whenever we can realize a positive NPV we will act not accordingly, but opportunistically.

Pascal Soriot

Yeah Just wanted to get back to Sachin's earlier question, the (VGF trial) two years of date. Our understanding, I checked in the mean time, Sachin, our understanding is that this result should come out late November to December. That's basically what we know at this point.

Severin Schwan

Okay. Thank you. Can we take the next question?

Operator

The next question is from Mr. Tim Race from Deutsche Bank. Please go ahead, sir.

Tim Race - Deutsche Bank

Thanks for taking my question. Two questions please. First, on just penetration rates of Avastin in ovarian cancer. Could you does remind us what Avastin is actually selling in the US and Europe off-label in the first and second lines or your best guess of that? And then the second question, pertuzumab. When do we expect to see the mature overall survival data, and do you expect to need that for an FDA approval specifically? And also, I mean -- or is it just a case simply of magnitude that PFS should be enough? Just to understand your thoughts on that, that would be great.

Pascal Soriot

The Avastin question, the use in ovarian cancer is relatively limited. I can't give you a number, but it's relatively limited at this point in time. And the pertuzumab question, the overall survival data we should get in 2013, but we believe we would be able -- I can't tell you more than we believe we'll be able to file earlier than this. So, wait until you see the result for the San Antonio congress, the PFS benefit. And hopefully you will share my view that we should be able to file before 2013 before we get the overall survival data.

Operator

The next question is from Mr. Jack Scannell from Sanford Bernstein. Please go ahead, sir?

Jack Scannell - Sanford Bernstein

Hi, Jack Scannell, Sanford Bernstein. Two questions. First, I think investors are concerned about the accounts receivable situation. I think it's partly because it's very difficult to know what's going on in different European health systems, how drugs are bought and sold. My understanding also is that in Greece you didn't really take a nuclear option. You continued supplying pharmacies, which meant that patients could get the drug even if the hospitals didn't.

So, if we turn to larger European markets like Spain, what are the sort of practical political risks and trade-offs you think about when thinking about how hard to fight to get paid or, indeed, are the political risks? That's the first question. The second question, why have you initiated a second large dalcetrapib study of 16,000 patients, different patient population to dal-OUTCOMES? Should we regard that as a signal of confidence in dal-OUTCOMES or a signal maybe that the dal-OUTCOMES patient population is not quite the right one?

Severin Schwan

If I may take the first question on the accounts receivables in the Mediterranean countries in Europe. You are absolutely right. Our utmost goal is to secure supply for patients and we succeeded in doing that in Greece by delivering to pharmacies, and of course, continuing to deliver to hospitals, who pay us within our payment terms. And it is our utmost priority to ensure patient access to our medicines also in other countries and I can confirm that this is the case.

At the same time, of course, we are facing a challenging situation. On the one hand we have customers who have literally not paid their bills for years and that is not sustainable. And on the other hand, of course, European governments, rightly so, are consolidating their public households. So, we are now sitting together with the customers with the respective authorities to find mutually acceptable solution. But there's no doubt patients' access for lifesaving drugs remains our highest priority. Perhaps, if you could then comment on dalcetrapib, Pascal?

Pascal Soriot

Yes, the dalcetrapib study, in fact the second study is in preparation. We haven't really started the study as yet. You should not read there that we know things we haven't shared with you. We still believe this is a great project, but it is a risky project. We have shared with you the data we have, at least, all the clinical data we have and we don't have any additional information that you would not have, but what we have is a lot of pre-clinical and animal work, certainly a lot of animal work that gives us confidence in the mechanism of action of dalcetrapib.

So, we are preparing for the second study and the reason why we do a second study is that the first one, as you'll remember, was done in post-ACS patients. We selected that population because the risk of any cardiovascular event is higher in that population and basically we want to show an efficacy there. And now we are expanding the population to patients who are at risk of a cardiovascular event and this would certainly dramatically expand the opportunities for dalcetrapib when we get that second indication. But you should not read anything out of this in terms of data we would have that would make us outstandingly confident compared to what we told you before.

Operator

The next question is from Mr. Keyur Parekh from Goldman Sachs. Please go ahead, sir.

Keyur Parekh - Goldman Sachs

Hi, thank you and three questions if I may, please. First, can you give us a sense for how margins have progressed over the last three months both on an organic basis and then secondly combined with the impact of the operational excellence program? Secondly, and as you go through the business planning on your end for 2012, can you please share with us some of your pushes and pulls you expect on the top-line and the bottom-line? And then lastly, just to confirm kind of what Pascal said earlier, which was you expect to file pertuzumab before 2013, I believe the original guidance was for before end of 2011. Is that still valid? Thank you.

Severin Schwan

Okay. As far as the margins are concerned, we are fully on track for our savings of operational excellence. We are continuing our work on productivity improvements across the organization, across functions and geographies. So, we are very confident that we can further expand margins, which is implicit in our goal of growing operating profit ahead of sales and growing core EPS at 10% as we have confirmed today. I was not sure that I catch your second question correctly. Could you just quickly repeat that?

Keyur Parekh - Goldman Sachs

Sure. As you go through the internal business plan for 2012, can you just share with us some things, some of the pushes and pulls you expect on the top line and the bottom line as we kind of -- so I understand you won't give us guidance until the end of the year, but just some qualitative assessment of where you think the pushes and pulls might be next year?

Severin Schwan

No, I am sorry I couldn't give you a more detailed guidance for 2012. As usual we will provide the financial guidance at the beginning of next year when we present the year-end results. Pascal, on pertuzumab.

Pascal Soriot

Yeah, Pertuzumab, I can confirm we will file as we communicated earlier, which is of course much before (inaudible).

Operator

The next question is from Mr. Gbola Amusa from UBS. Please go ahead, sir.

Gbola Amusa - UBS

Hi, thanks for taking my call. Just three quick questions. Your China growth rate of 27%, could you comment on how Avastin, Herceptin, and Rituxan on how their pricing stands relative to Europe in the most recent sales? Secondly, on Pegasys, do you consider the Promacta data next month relevant for your forecast planning around Pegasys? And then lastly, for Zelboraf I know it's probably too early to ask this question, but do you have any anecdotal comments on how Zelboraf is being chosen versus Yervoy? Thanks.

Pascal Soriot

The first question China -- Avastin China is doing very well in colorectal cancer. The pricing is very consistent with our international pricing in China for this product. The second question, Pegasys, I am not sure I…

Severin Schwan

There was also Herceptin in China, pricing Herceptin in China.

Pascal Soriot

So the prices of Avastin is similar, the pricing of Herceptin historically was similar in China but we've entered into -- we've launched a new program where essentially we will give half of the treatment cost free of charge for patients so they get treated for the full cost of close to 12 months. So essentially that program will help us with introducing a more flexible pricing in China and help us drive utilization of Herceptin and increased volume of course. As you can imagine there are many, many patients in China who should receive Herceptin and don’t today. So we are hopeful that our program will certainly increase adoption and we've seen some pretty good response so far.

The Pegasys question, if you don't mind repeating it. I wasn't too sure whether it's related to China to start with and secondly, I am not sure I understood it. And quickly the Zelboraf question, it is too early to give you anecdotal evidence as to how it's used. The one thing we can tell you is that most physicians seem to believe that -- to think that in mutated patients Zelboraf is clearly the ideal first treatment. In particular in those patients who have a higher tumor burden. But in those mutated patients we seem to have first-line use with Zelboraf. But it is really very early days.

We are very happy with the initial results. 11 million may not sound so high, but remember, it's only five weeks. Remember that Zelboraf is invoiced as it goes. I mean, every month we invoice the months of treatment compared to Yervoy where you invoice rapidly a full treatment cost equivalent of 12 months treatment cost. So you have a pricing discrepancy here in the initial first few weeks and months. And finally, our target population is of course 50% of melanoma patients with those that are mutated. So, initially very good results, very exciting feedback, but too early to really be too specific in comments.

Severin Schwan

Andrew, could just recollect your Pegasys question?

Gbola Amusa - UBS

Yeah, it’s Gbola. Just had a question on -- it relates to this thrombopoietin agonist that will get data that is supposed to shift the standard of care potentially if it's successful in hep C, by addressing the dose limiting toxicity of interferons, which is thrombocytopenia. The question is, is this relevant? Do you consider it during your forecast planning?

Pascal Soriot

I am really sorry, on this one I can’t comment. So we will have to get back to you.

Severin Schwan

We will get back to you, Gbola, on this one. First, I have to find out that, yeah, I am certain.

Operator

The next question is from Andrew Weiss from Bank Vontobel. Please go ahead, sir.

Andrew Weiss - Bank Vontobel

Thank you for taking my question. For Pascal, I had a quick question on Avastin, the international revenues. The deceleration process of local currency growth over the past four quarters is basically coming down from the 30s down to now 5%. Is that purely the consequence of trying to grow volume versus and then using the price as a way how to grow that volume?

And the question to Alan, a classic of modern pharma companies is that they overachieve their operation excellence or cost-cutting programs in timelines and then in terms of numbers. You were making comments before, I wasn't quite sure how to read it, but my question to you would be, would we see -- would that drop down to the core operating profit if you were to exceed your operational excellence goal of 1.8 billion this year. Which means that for every 100 million that you would be exceeding that, we would see 1% more local currency growth, or would that be lost in the shuffle because of the Japanese slowdown? Thank you.

Pascal Soriot

So let me just maybe take your first question about Avastin. The numbers you see reported in our document here show 5% growth in the quarter three. With Avastin we have a little bit of the same effect as I described earlier with Herceptin and I can give you the volume growth for quarter three is 16%. So, we still have a pretty strong growth rate in quarter three with Avastin in the international region. Which is very coherent with what we've experienced in the previous quarters because the growth rate volume-wise year-to-date is about 14. So if anything you would think you would say Q3 volume wise is a bit higher than the previous quarter.

So, and in Asia we have strong growth, essentially driven by China. So, volume growth, which is very coherent in Q3 compared to the previous quarter, but unfortunately we are impacted by this phenomenon, which is a little bit complicated to describe, but which I was trying to explain a bit earlier. Which in a roundabout way is a kind of currency effect if you want.

Alan Hippe

Andrew, it is Alan. First of all I am happy about your picture about the Pharma industry and how they handle and well handle their cost cutting programs. I think in our case it's very clear in the guidance. In the guidance we have said that we are going to realize 1.8 billion and that's what we are doing.

Andrew Weiss - Bank Vontobel

Okay. But if you were to exceed, we would see that or do you think that you would, I will get lost?

Alan Hippe

I would not speculate. I think the 1.8 is 1.8.

Operator

The next question is from Mr. Amit Roy from Nomura. Please go ahead, sir.

Amit Roy - Nomura

Hi. (inaudible). Just three questions. Firstly, one around the Avastin guidance for this year. How much Avastin is left in the U.S.? Because you originally guided for sort of down 800 for this year, plus 500 in the international rest of world. What we are seeing is roughly down 5, which is just about 300 left, but only about 100 up. So trying to understand how much Avastin is left and whether you still stand by that guidance that you originally gave.

Second question on T-DM1, the discussions you presented at ESMO pointed out that there's a rather high discontinuation rate in the Herceptin number, around about 30% from what's normally around about 10%-15%. And that the PFS was abnormally low, about nine months compared to 12 months, and that the duration of chemotherapy was also abnormally low that they are essentially because of investigator bias. So I just wanted to know what your views are on the prospects of investigator bias in the study being open-label ARM? And lastly, just following up from the dal-OUTCOMES 2 study. Is dalcetrapib going to be given for four to five years? It is a longer-term safety of 1-0 goals as well on dal-OUTCOMES 2. Thanks.

Pascal Soriot

Amit, the Avastin guidance to start with, what I can tell you is that our patient share in the United States in breast cancer is now about 20% and is still declining. We expect we would stabilize around 12% to 15%, but there is still a bit of way to go in breast cancer in the United States. Elsewhere, in Europe, we are stable now. So, what I can tell you is on an aggregate basis for Avastin we level off. So quarter four should look from a growth rate viewpoint better than quarter three.

And certainly, next year, we expect to be in positive growth territory. I won't give you a specific number, of course, but certainly we expect a much better picture next year. T-DM1; I don't know that I want to get into the details of the points you're making. I just want to remind you this was a Phase II study. So in the end we basically have to wait until we see the results of the Phase III studies, both in second-line and first-line.

Maybe one thing you forgot to mention that the discussions also said, I think if I remember correctly, she said that, this drug was sort of magical. So, despite all the flaws you saw in the studies and as a good scientist she pointed out, she seemed to be quite enthused and excited by the potential of T-DM1 in treatment of breast cancer. But at the end of the day we only have to -- we can only wait for the results of the Phase III study. And that dal-OUTCOMES II study, I am not 100% sure I’ve got the question...

Amit Roy - Nomura

Yeah, the question was the duration of use of the dalcetrapib. Is it a four, five years of therapy, the long term duration that you're also looking at for safety?

Pascal Soriot

Sorry, I can't be very specific. We haven't published that particular account for that one specifically. Certainly, you can expect a very long follow-up with a study like this one, but specifically how long that would be, I cannot tell you, but we certainly can get back to you on that one.

Operator

The next question is from Mr. Vincent Meunier from Exane. Please go ahead, sir.

Vincent Meunier - Exane BNP Paribas

Hello. Thank you for taking my questions. The first one is on austerity measures. Talking about 2012 and beyond, do you expect a stabilization or an amplification of the austerity measures in Europe? The second question is on Avastin in ovarian cancer. Looking at the situation in first-line in the U.S., can you give us more comments on the low likelihood of a filing, and what will be the risk in Europe regarding the existing labeling? The last one is on GA101. What can we expect from the Phase II results? More specifically, in case of, say, of a failure, what could be the read across for the ongoing Phase III trials in lymphoma? Thank you.

Severin Schwan

Perhaps if I could take the first question on the pricing development and the austerity measures in Europe and then handover to Pascal for ovarian cancer and GA101. I mean what we have seen in the context of the financial crisis was that the implementation of the respective healthcare reforms came with a certain delay and that is due to the fact that we are in a very regulated business and that our prices are regulated by European governments. So typically there is a certain political process to be adhered to, which takes 12 to 18 months and as such you see a certain delay of any measures which are taken.

Now we have seen really a big contrast in terms of the magnitude of the measures in Europe in 2010 and 2011. In 2010, over the year, we have seen really a significant impact of measures, I remind you of Germany with minus 16%, Spain 7.5%, etcetera. And we have seen this effect washing out now over the year. So, it’s becoming less in the second half of this year and we have not seen new initiatives of the magnitude we have seen in 2010 which eventually became effective in 2011. So, from that you can conclude that we will see continued ongoing price pressure as we have always had it in Europe, but I do not expect a major impact into 2012 specifically. Pascal, if you could comment on ovarian cancer?

Pascal Soriot

Yes, first of all, the first question was ovarian first-line. We are optimistic as far as Europe. I mean we got positive recommendation as you know, so we expect approval and we filed the second-line in Europe. I can only repeat what I said as far as the United States. We have to wait until we see the overall survival update, but we have to accept that the likelihood of filing in the U.S. for first-line is probably low, but it will depend on this update on -- this OS update, but again take home though the low likelihood as far as your modeling.

GA101, I don't think you should necessarily assume a failed study. I think we'd just like to suggest you, wait till you see the data at the ASH and then we can talk about it again maybe at the end of year call. Let me just take advantage of having the microphone to get back to pertuzumab, to reconfirm, maybe more clearly than I have done it a few minutes ago that our plan is still to file in 2011. So, I was reacting more directly to a 2013 question, but clearly our plan is to file this year.

Operator

The next question is from Mr. Marcel Brand from Cheuvreux. Please go ahead, sir.

Marcel Brand - Cheuvreux

Yeah, thank you very much for taking my question. I would like to know what percentage of patients who are on Incivek actually get Pegasys versus peginterferon? It seems that Incivek is obviously having a much stronger launch than Victrelis and how you see that panning out over time. And then a more strategic question. I don't remember having you heard talk so much in detail about credit rating. Is that to be seen as a prelude to a larger deal? That's the two questions.

Pascal Soriot

I'll take the Pegasys question. I can't give you specific numbers for boceprevir and telaprevir. I can tell you that certainly our share in combination with boceprevir is a little bit lower than it is with telaprevir for reasons that are obvious. Telaprevir was developed in combination with Pegasys. But I can tell you in the U.S., because that's the only market where we have the data today, where all agents are not launched yet in Europe and not reimbursed at least, is that, we have an 85% share with Pegasys in the interferon market and that share has been increasing. So, overall, certainly Pegasys has been doing very well in this new market dynamics.

Marcel Brand - Cheuvreux

So, in other words you are saying that most of the patients on Incivek they would get Pegasys. Is that correct?

Pascal Soriot

I would have to be more specific, I mean most of them do absolutely, most of them. I don't think we have 100% share of those patients. It's only a very high share because our overall share across the two agents is 85%. So it's certainly very, very high as far as Incivek.

Alan Hippe

Yeah, the answer to your second question -- this is Alan speaking -- is clearly no. But as I get a lot of questions on a regular basis about the balance sheet we saw this worthwhile yet, we shed some light on what's going on with the balance sheet. That's the only reason.

Operator

(Operator Instructions) The next question is from Mr. Gavin MacGregor from Credit Suisse. Please go ahead, sir.

Gavin MacGregor - Credit Suisse

Thanks very much. Just one question on your Japanese pharmas. If we look at your Japan Pharma business sales growth, it's been negative for the last seven quarters. What's going to change that and how does that leave you feeling about your stake in Chugai? Thanks.

Pascal Soriot

Let me take the first part of the question and Severin you might want to comment. The first part, I mean let me just say that our growth rate in Japan over the last several quarters has been negatively impacted by the EPO market. This is a market where Chugai in Japan had a pretty strong presence. The EPO market is large and we had a very strong market share. This is a market that has been impacted with substantial price decreases and we've been, as a company we've been hurt by this. Which is correct when you said several quarters, by the way, the Chugai growth rate over the last two quarters was negative, but the prior quarters, certainly in 2010 and Q1 this year we have positive growth rates.

But certainly it is clear that we have been impacted in by the decline in the EPO market, but we've done extremely well with Avastin in colorectal cancer. We have 65% patient share which is the kind of share we have in the markets around the world and the more successful. That's what we have in the U.S., that's what we have in France. So very, very great success in colorectal cancer with Avastin and we hope to duplicate this success in breast cancer now that we have approval. We've done well also with Tarceva, we're doing well with a number of products, but certainly the EPO market has been the fundamental negative factor and more recently the earthquake situation.

Severin Schwan

Yeah, just to build on Pascal's comment, perhaps again on the growth rate you might have looked at sales numbers including Tamiflu. So we had very high deliveries of Tamiflu in 2009 and as a result of that the Japanese sales have declined including Tamiflu in 2010. But if you correct for this pandemic stockpiling and flu pandemic which we had in 2009, then actually the growth was positive and above the market in Japan. And indeed we had a weak quarter in Q3, but as I said before, and we expect that to stabilize for the fourth quarter. So, we are fully committed to Japan and we are fully committed to our relationship with Chugai.

Do we have any more questions?

Operator

The next question is from Mr. David Evans from UniCredit. Please go ahead.

David Evans - UniCredit

Thanks for taking my questions. I just wanted to go back to your comments on the international region and how you've adjusted the selling price to compensate currency moves and so on? Now the Swiss franc has bounced back to more normal levels. Just want to check whether this pricing affect was purely Q3 impact or should the growth rate in Q4 and beyond in the international region bounce right back up for your three major products up to the 15% to 20% level in Q4 and beyond? Thanks very much.

Pascal Soriot

Thanks for the question. I think you really should look at this as almost a currency effect that you will not see if we looked at it at constant currency. So, essentially those adjustments would automatically disappear as the currency changes and if the Swiss franc weakens in the next few months then you will see a positive impact and the growth rate will certainly be positive there. I think what you need to keep in mind is essentially the volume growth which is very substantial for both Herceptin, Avastin and other products. And assume that as the Swiss franc weakens you will see this negative effect disappear from our sales.

Severin Schwan

I believe we don't have any more questions. So, I would like to thank you for your interest in Roche and wish you a good day. Thank you very much indeed.

Operator

Ladies and gentlemen, the conference is now over. Thank you for choosing the Chorus Call facility and thank you for participating in the conference. You may now disconnect your lines. Goodbye.

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