Swiss drugmaker Roche struck a cautious note on 2011, as the sector grapples with U.S. healthcare reforms and a push in Europe for lower drug prices, after growth of its top-seller Avastin slowed sharply in 2010.

The world's largest maker of cancer drugs, looking to cut costs after a string of product setbacks, said on Wednesday sales were expected to grow at low single-digit rates in local currencies this year.

Its sales outlook does not include flu drug Tamiflu.

Net income rose 4 percent to 8.89 billion Swiss francs ($9.25 billion) in 2010, as sales growth of top-selling cancer drug Avastin slowed. Full-year core earnings per share rose 4 percent to 12.78 francs, compared with a forecast for 13.0 francs in a Reuters poll.

Roche is now aiming for 2011 core earnings per share growth at a high single-digit rate at constant exchange rates.

The outlook for 2011 is disappointing, said Kepler analyst Martin Voegtli, adding analysts would have to lower estimates for the company's core earnings per share.

Roche stock, which had risen 5 percent this year after falling 22 percent in 2010, was down 2.0 percent at 0845 GMT, underperforming a 0.7 percent lower European 600 healthcare index.

Roche's comment echoed downbeat 2011 outlooks from rivals -- AstraZeneca, Bristol-Myers Squibb, Johnson & Johnson, Novartis and Pfizer -- as the sector braces for higher costs from U.S. healthcare reform, pressure to keep a lid on prices and patent expirations of key drugs.

AVASTIN TROUBLES

Analysts at Jefferies said Roche's reduced expectations for Avastin sales added another disappointment.

Roche now expects Avastin peak sales to be around 7 billion francs. The group had said peak sales were likely to be at the low end of the 8-9 billion franc range if U.S. authorities were to revoke approval of Avastin in breast cancer.

Roche, which recently said ThyssenKrupp's finance chief Alan Hippe would take over as its CFO, has been trying to rebuild investor confidence after setbacks last year to key products such as Avastin knocked its stock price.

Roche said on Wednesday it had dropped the development of diabetes treatment taspoglutide, ending its partnership with French drugmaker Ipsen.

Roche will slash thousands of jobs over the next two years as part of a far-reaching cost-cutting program announced in November and aimed at offsetting the pipeline disappointments and difficult industry conditions.

Sales of Avastin, the most world's best-selling cancer medicine, grew 2 percent in the final quarter of 2010, down from 7 percent in the third quarter.

Sales at the group's key pharma unit fell 8 percent in the fourth quarter.

Avastin is the main shortfall (in the fourth quarter), but Herceptin was also weak, said Helvea analyst Karl-Heinz Koch.

Avastin has been approved for several different cancers, including certain types of lung cancer, advanced colorectal and kidney cancers, but has faced a number of setbacks and, on Tuesday, researchers highlighted side-effects linked to the drug.

It had been approved to treat breast cancer but failed to help breast cancer patients live longer in four clinical trials, leading U.S. regulators to rescind its approval in breast cancer in December.

Avastin blocks vascular endothelial growth factor, or VEGF, which is needed to form blood vessels to feed tumors but also needed for normal blood vessel growth.

Recent encouraging data on drugs such as RG7204 for the deadliest form of skin cancer has, however, reminded markets the group still boasts one of the strongest pipelines in the industry and remains a leader in cancer treatments.

(Editing by Dan Lalor and Jon Loades-Carter)

($1 = 0.9607 Swiss franc)

Pfizer Breast cancer Cancer