Swiss drugmaker Roche gave a bullish forecast for the next two years on the back of its $47 billion acquisition of Genentech and said it would expand capacity for H1N1 flu drug Tamiflu.

Roche missed forecasts with a 29 percent drop in first-half net profit on Thursday, hit by costs related to the Genentech purchase earlier this year, but its stock rose thanks to the strength of its underlying business.

The world's largest maker of cancer drugs upped its earnings guidance thanks to the Genentech deal and now expects double-digit core earnings per share growth in 2009 and 2010, compared to a previous target to stay at the 2008 level.

Roche was expected to raise its 2009 guidance but the extent is a positive surprise, said DZ Bank analyst Thomas Maul.

Total production capacity for antiviral Tamiflu, which has been boosted by sales linked to the H1N1 swine flu pandemic, will be expanded to 400 million packs annually by the start of 2010, Roche said.

Signs of H1N1 resistance to the drug are no surprise, given this happens also in seasonal flu, and are nothing to worry about yet, the firm's pharmaceuticals head William Burns said.

Tamiflu sales rose more than 200 percent to just over 1 billion francs and Chief Executive Severin Schwan said Roche was able to meet all orders. The group expects similar sales of the drug in the second half.

Roche's stock rose 2.7 percent to 158.70 francs by 1001 GMT, versus a DJ Stoxx European health care sector up 0.2 percent.

It said sales at both its pharma and diagnostics businesses should grow well ahead of the market this year and it will use cash flow to repay debt, expecting to repay 25 percent of the total by the end of 2010 and to return to a positive net cash position by 2015.

Roche delivered a very strong set of results, said Vontobel analyst Andrew Weiss.

SECTOR STRENGTH

Healthcare is normally one of the last areas where consumers cut back during a recession and the sector has posted a string of strong earnings performances, with the world's two biggest drugmakers -- Pfizer and GlaxoSmithKline -- beating forecasts, as did Roche's Swiss rival Novartis.

The sector does however face looming threats of more competition, problems getting new drugs to market and cheaper medicines from generics manufacturers.

Investors will now eye numbers from U.S. drugmakers Bristol-Myers Squibb and Wyeth due later on Thursday.

Roche trades at a premium to European rivals Glaxo, Sanofi-Aventis, Novartis and AstraZeneca thanks to its strong position in cancer and biotech drugs and its lack of exposure to generic competition.

Roche's first-half net profit fell to 4.1 billion Swiss francs ($3.8 billion) from 5.7 billion francs in the same period last year and compared with an average forecast of 5.0 billion francs, according to a Reuters poll of 15 analysts.

It bought out U.S. biotech partner Genentech earlier this year to reinforce its position in cancer medicines, incurring exceptional costs of 2 billion francs in the first half.

Roche sees total integration costs of about 3 billion francs and annual synergies of 1 billion Swiss francs, or $936 million, up from a previous target of $750 to $850 million.

We also see the first cost synergies coming through from the Genentech integration, Schwan said at Roche's Basel headquarters. Not a single one of the top scientists has left the company.

($1=1.068 Swiss Franc)

(Editing by Mike Nesbit, John Stonestreet)

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