Swiss pharmaceutical company Roche Holding AG (ROG.VX) Wednesday reported an 8% drop in full-year net profit and slightly lower sales, blaming the drop on the strong Swiss franc, lower financial income and higher spending on research and development.

Roche, which announced a hostile offer last week to take over control of U.S. biotechnology company Genentech Inc. (DNA), gave few new details on how it wants to finance the deal, valued at $42.1 billion, but said the takeover should contribute to earnings growth within one year after closing.

Chief executive Severin Schwan told reporters Wednesday that Roche plans to launch a bond immediately after the the company formally starts its tender offer for the 44% of Genentech it doesn't already own. The terms of the bond will then serve as base for further talks on financing the deal, he added.

Roche, based in Basel, said net profit attributable to shareholders fell to 8.97 billion Swiss francs ($7.83 billion) in the year ended Dec. 31, from CHF9.76 billion in 2007, missing analysts' estimates. Roche, which doesn't publish quarterly earnings figures, said sales declined 1% to CHF45.62 billion from CHF46.13 billion.

The strength of the Swiss franc, a sharp drop in revenue from flu drug Tamiflu, lower financial earnings due to record-low interest rates, as well as high investments in research and development all weighed on net profit. R&D investments will stay high this year because a number of products are entering the final, most expensive phase of clinical testing, Schwan said.

Roche plans to increase its dividend to CHF5 a share, from CHF4.60 in 2007. For 2009, Roche expects sales at its flagship pharmaceutical division and for the group as a whole to rise around 5%. The company predicts its core earnings per share will remain unchanged from 2008.

"Against the background of slowing sales and profit growth in the years ahead, the Genentech takeover becomes even more important, because it can help accelerate earnings growth as a result of cost savings," said Birgit Kulhoff, pharmaceutical analyst in Zurich with private bank Rahn & Bodmer.

Sales at the flagship pharmaceutical unit in 2008 suffered from the fall in Tamiflu revenue. The drug had seen healthy sales in earlier years when governments bought in bulk to stockpile to be prepared for the possible outbreak of an influenza pandemic. The franc's appreciation against the dollar and the euro further dented sales.

Excluding Tamiflu and expressed in the currencies of where drugs are sold, pharmaceutical sales grew 10% last year.

Key drugs continued to post sales increases. Cancer drugs Rituxan/MabThera, Avastin and Herceptin all recorded sales of more than CHF5 billion in 2008, Roche said.

Still, Schwan cautioned that growth rates may come down for some products, notably Herceptin, which has become the drug of choice for the treatment of a certain type of breast cancer.

At 1145 GMT, Roche shares were down 8.9%, or CHF14.40, at CHF148.20. The stock has lost a quarter of its value over the past 12 months.

Company Web site: www.roche.com

-By Anita Greil, Dow Jones Newswires; +41 43 443 8044 ; anita.greil@dowjones.com

(Julia Mengewein in Zurich contributed to this article).

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