Drug Maker Roche Returning to Its Roots

NUTLEY, N.J.(AP) _ Century-old Swiss drug giant Roche Group, the parent of Hoffmann-La Roche, is returning to its roots and, potentially, its glory days. <br><br>Early on, the Basel-based pharmaceutical

Monday, July 21st 2003, 12:00 am

By: News On 6

NUTLEY, N.J.(AP) _ Century-old Swiss drug giant Roche Group, the parent of Hoffmann-La Roche, is returning to its roots and, potentially, its glory days.

Early on, the Basel-based pharmaceutical company made a variety of novel drugs aimed at the masses, from painkillers and sleep aids to heart drugs, antibiotics and breakthrough anxiety drugs such as Valium.

Over the last decade or two, its focus switched to specialty drugs with smaller markets _ ones used mainly in hospitals or prescribed by specialists in cancer, dermatology, organ transplants, AIDS and hepatitis. Few of its products are household names because Roche doesn't plaster consumer ads all over TV and newspapers. And it doesn't rush to copycat competitors' successes.

That strategy worked well until the late 1990s, when crucial drugs failed in late testing or were commercial flops. In 1999, the company and other drug makers got hit with criminal fines and paid to settle charges they colluded to inflate wholesale prices that hundreds of food and beverage companies paid for vitamins added to their products. Then its huge investment portfolio, which generated about one-fourth of revenues in 2000, began losing money as world markets plunged.

``This used to be one of the premier pharmaceutical companies in the world,'' said Hemant Shah of HKS & Co., an independent pharmaceutical analyst in Warren, N.J. ``Then they kind of stumbled.''

Now Roche, which announces its midyear financial results Wednesday, is returning to its old strategy. The key drugs in its pipeline are for conditions afflicting millions, including asthma, depression, osteoporosis, diabetes and stress incontinence, or bladder leakage triggered by exercise, coughing or laughing.

Roche is banking on those new drugs working better, with less side effects, than existing ones because they directly target enzymes or mechanisms causing the condition, said Louis Renzetti, who heads Hoffmann-La Roche's efforts to speed up discovery of new compounds, said last week.

``We were able to understand these pathways,'' Renzetti said, because of Roche advances in molecular biology and cell biology. ``This innovation is going to be the key to our success and growth.''

Roche currently has nearly 200 potential drugs in development, a third of them based on new chemical compounds, said George Abercrombie, chief executive officer since 2001 at Hoffmann-La Roche, the company's U.S. pharmaceuticals business based in Nutley.

When he arrived, sales and other staff had been built up well beyond what annual revenues _ now $21 billion a year _ could support, given the unexpectedly low sales of influenza treatment Tamiflu and weight-loss drug Xenical. He slashed the U.S. work force 25 percent.

``Over the past few years, we've made tremendous progress rebuilding the organization, rebuilding morale,'' Abercrombie said. ``People recognize, as do the (financial) markets, that this company has a future.''

That's because Roche made other key management changes, got the global staff down to the right size and made some good acquisitions and deals to license rights to other companies' experimental drugs, said Alister Campbell, pharmaceuticals analyst at Smith Barney in London. Roche also is selling its vitamin and chemicals business, putting behind it a scandal that has cost more than $3.5 billion.

A stock slide since 1999, from about $130 per share to a low of about $56 this March, finally ended. Shares are now up about 40 percent to the $80 range, and some institutional investors recommend buying the stock.

``After a few difficult years, we believe Roche offers a turnaround in its pharmaceuticals business,'' J.P. Morgan analyst Premal Pajwani wrote earlier this year. That turnaround has been driven by its two newest drugs, Fuzeon for AIDS and Pegasys, an advanced hepatitis C treatment, and by products from its biotech subsidiary Genentech.

``However, the road to resurrection will be rocky,'' Pajwani added. He cited upcoming patent expirations for the acne drug Accutane and injectable antibiotic Rocephin.

Renzetti says Roche's pipeline now has a good balance of specialty medicines and drugs prescribed by primary care doctors.

``We want to compete there, and we have innovative products that will do that,'' Renzetti said.

Those drugs won't be approved for several years, except for Avastin, a promising cancer compound developed by Genentech that could generate up to $3 billion in annual sales, Campbell said.

While seven Roche drugs now lead their categories, none are among the top 20 in sales in this country, the world's biggest market by far. But Genentech's cancer drugs Herceptin and Rituxan are big sellers, and Fuzeon and Pegasys could be major moneymakers.

Roche is selling Pegasys for much less than Schering-Plough's Peg-Intron, which beat it to market. Abercrombie says Pegasys already has grabbed more than 30 percent of new prescriptions.

Its only clear advantage is lower rates of depression and irritation at the injection site, said Dr. Sanjeev Arora, a hepatitis C specialist at University of New Mexico School of Medicine. Both Pegasys and Peg-Intron have greatly increased the cure rate for the liver-destroying disease but have many side effects, from nausea and fatigue to anxiety, he said.

Founded in 1896 by Fritz Hoffmann and wife Adele La Roche and initially named for the couple, the company eventually renamed the Roche Group initially manufactured an antiseptic, a painkiller and a heart drug, before establishing a division to research new compounds in 1910. That was incorporated as Hoffmann-La Roche in 1929, when it moved its headquarters to Nutley in northern New Jersey.

Roche, which is still controlled by descendants of the founding family, initiated the ``Vitamin Era'' in the 1930s by figuring out how to make synthetic vitamins in bulk and long dominated that field. Hoffmann-La Roche chemist Leo Sternbach's discovery of the anti-anxiety drug Valium, which became a cultural icon and Roche's first blockbuster soon after its 1963 introduction, launched a golden era for Roche.

Over the next few decades, it created a division that makes diagnostic tests and rolled out major drugs. They include Dalmane for insomnia, the antibiotics Bactrim and Rocephin, Accutane for severe acne, blockbuster ulcer drug Zantac, painkiller Toradol and the sedative/anesthetic Versed.