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Roche Reports 3 Percent Diagnostics Revenue Decline in H1

NEW YORK – Roche on Thursday reported a 3 percent decline in half-year revenues for its Diagnostics division. At constant exchange rates, however, diagnostics revenues were up 3 percent, and the main driver of both revenue gains and misses was the COVID-19 pandemic.

For the first half of 2020, the Roche Group reported CHF 29.28 billion ($31.53 billion) in total sales, down 4 percent (up 1 percent at constant exchange rates) from CHF 30.47 billion during the first half of 2019.

Revenues for the Diagnostics division came in at CHF 6.08 billion, down 3 percent (up 3 percent at constant exchange rates) compared to the CHF 6.28 billion in revenues during the same period last year. For the second quarter, diagnostics sales totaled CHF 3.20 billion, down 2 percent at constant exchange rates from CHF 3.38 billion in Q2 of 2019.

Molecular diagnostics revenues increased 51 percent (up 61 percent at constant exchange rates) to CHF 1.56 billion from CHF 1.03 billion in H1 of 2019 and contributed 25.6 percent to half-year diagnostics sales.

Sales in this area were driven by demand for the firm's SARS-CoV-2 molecular tests, which the company said offset a decline in routine testing volumes. Each business in this area grew, with the lower-throughput LightMix systems skyrocketing 171 percent, virology up 115 percent, and point-of-care molecular diagnostics increasing 56 percent.

Currently, Roche has seven SARS-CoV-2 products and on a conference call to discuss the results, Roche CEO Severin Schwan said there would be three new tests for the virus launching this year – one antibody test and two multiplex PCR tests.

Schwan said the firm was hit hardest in May because of the COVID-19 pandemic and global shutdowns. He noted that hospitals were focused almost entirely on treating patients with the virus, which delayed routine diagnostics. However, Schwan also said sales have been recovering towards the end of June and in the first weeks of July.

Centralized and Point of Care Solutions revenues declined 15 percent (10 percent at constant exchange rates) to CHF 3.18 billion in the first half of the year, contributing 52 percent to overall diagnostics sales. Within that segment, the immunodiagnostics business declined 12 percent at current exchange rates due to the COVID-19 pandemic shutdown resulting in a decrease in routine testing. Clinical chemistry was also down 14 percent in the first half of the year.

Diabetes Care sales declined 13 percent (6 percent at constant exchange rates) in H1 to CHF 832 million from CHF 958 million in H1 2019 and contributed 14 percent to overall diagnostic sales.

Blood glucose monitoring sales contracted 5 percent and insulin delivery systems sales declined 12 percent, both at constant exchange rates.

Tissue Diagnostics revenues declined 3 percent (up 2 percent at constant exchange rates) to CHF 508 million from CHF 526 million in H1 of 2019 and contributed 8 percent to overall diagnostic sales. The companion diagnostics business, which increased 20 percent, and instrument sales helped the division partially weather the negative impact from COVID-19. Primary staining sales dropped 12 percent and advanced staining sales remained flat, both at constant exchange rates.

Roche Head of Diagnostics Thomas Schinecker noted on the earnings call that while growth in the division was mostly in line with what the company expected, the mix "has been very different." He also said there were twice as many hardware sales in the first half of the year, increasing the costs of distribution. Shutdowns because of the pandemic also made it hard to get those products into different countries, so special flights had to be chartered to ensure products were on time.

By geography, diagnostics sales for H1 stayed flat (up 1 percent at current exchange rates) in Japan, decreased 16 percent (9 percent at constant exchange rates) in Asia Pacific, and increased 10 percent (13 percent at constant exchange rates) in North America. They contracted 2 percent (and grew 5 percent at constant exchange rates) in Europe, the Middle East, and Africa and decreased 14 percent (growing 6 percent at constant exchange rates) in Latin America.

R&D spending by the Diagnostics division totaled CHF 740 million in H1, down 1 percent, and general and administration expenses amounted to CHF 249 million.

Net income for the Roche Group decreased to CHF 8.47 billion, or CHF 10.44 per share in H1, from CHF 8.90 billion, or CHF 11.12 per share, in the first half of 2019.

As a result of the half-year results, Roche confirmed its previous guidance for full-year 2020. The company is expecting low- to mid-single digit percent sales growth at constant exchange rates. Core earnings per share are expected to grow broadly in line with sales.

As of June 30, Roche had CHF 3.77 billion in cash and cash equivalents and CHF 2.48 billion in marketable securities.