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Why Roche's CEO Is Wrong to Blame Obamacare for 4,800 Layoffs

For weeks, Roche (ROG.VX) CEO Severin Schwan has been telling investors and his employees that the company will have to downsize because of healthcare reform in the U.S. and forced price cuts among the national health services in the Eurozone. Today, he announced that 4,800 Roche employees will lose their jobs companywide, and a total of 6,300 positions will be either eliminated or transferred elsewhere.

The layoffs are not caused by healthcare reform, however. They're caused by an abject lack of demand for Roche's 'flu prevantative, Tamiflu, among other things. In fact if you strip Tamiflu out of Roche's numbers the company actually grew sales following the passage of healthcare reform.

Schwan's announcement did not blame Obamacare specifically, but then it didn't need to. Schwan already blamed it in an internal memo to employees warning of impending cuts in September ...

The impact of US healthcare reform, pricing measures in Europe and higher demands from regulatory authorities have all had an impact on our business.
... and in a press release the same month:
In view of mounting pressures to curb healthcare costs - especially in the United States and Europe - together with recent developments in late-stage projects in the Roche pipeline, this initiative aims to adapt cost structures and accelerate productivity improvements Group-wide.
But if you read Roche's Q3 2010 investor presentation it's as plain as day that a collapse in Tamiflu sales is the main drag on growth at Roche; sales in most parts of the company and in most of its geographic regions are growing if you exclude Tamiflu. This slide shows how sales growth is being crippled by Tamiflu:

This slide shows that Roche added $1.9 billion in sales ex-Tamiflu:

This one shows that the company is basically growing all over if you exclude Tamiflu:

So how bad for Roche was healthcare reform? Almost negligible. While Tamiflu cut pharma sales 5.1 percent in Q3, the impact of healthcare reform in the U.S. sliced just 0.6 percent off sales. European austerity measures cut 0.9 percent. Sales of Roche's drugs are actually up 4.3 percent despite those reforms, as long as you ignore Tamiflu:

So next time you hear someone tell you that healthcare reform or drug price controls "kill growth," show them Roche's numbers. In the wake of both those events, the company grew its sales by a healthy margin. The fact that the 'flu season wasn't brutal enough for Roche's liking is unfortunate for Roche's employees, but their layoffs have nothing to do with Obamacare or socialized medicine.


Photo by Flickr user Jon Person, CC 2.0