Roche Holding AG expects the strong Swiss franc to shave 14 percent off its full-year earnings, the Swiss drugmaker said on Thursday after the red-hot currency took a hefty chunk out of its third-quarter sales.

Quarterly sales at the world's biggest maker of cancer drugs slumped 14.5 percent to 9.82 billion Swiss francs ($11 billion), falling short of estimates as sales of its key drugs also trailed expectations.

Roche, which has been grappling with declining sales of cancer medicine Avastin and the effects of cuts in global healthcare spending throughout the year, said the full-year impact from the franc on core earnings per share would be 14 percent if it remains stable.

Full-year sales are expected to take a 12 percent hit -- a slight improvement from the 15.7 percent impact in the third quarter.

At 0951 GMT, Roche stock was trading 3.7 percent lower, underperforming a 1.2 percent drop in the European healthcare sector index <.SXDP>, as investors digested the sales miss.

The results are weak and suggest Roche will require continued underlying cost savings in order to achieve guidance, Deutsche Bank analysts said.

The Basel-based drugmaker is sticking to its full-year guidance of core earnings per share growth of around 10 percent in local currencies, as well as its target of low single-digit sales growth in local currencies, excluding Tamiflu, a pill to treat flu.

Stripping out the currency impact, third-quarter sales rose 2 percent, excluding Tamiflu, underscoring the hit from the franc, which has soared to a series of records against the dollar and the euro this year.

Roche has said it is still firmly committed to its Swiss base thanks to the deep talent pools, excellent infrastructure and low tax rates, and a move by the Swiss National Bank last month to cap the franc should also ease pain for exporters.

KEY DRUGS FALTER

Roche, which does not post quarterly earnings figures, also said it was on track to shave off 1.8 billion francs in costs this year and to realize annual savings of 2.4 billion francs by the end of 2012, in line with its Operational Excellence program laid out last year.

The 115-year-old group has faced slowing demand for Avastin, one of its top-selling cancer drugs, after U.S. authorities proposed revoking its approval in advanced breast cancer at the end of last year. The group is still awaiting a final decision.

Avastin sales slipped 10 percent at constant exchange rates in the third quarter to 1.2 billion francs, also trailing expectations, but the group expects the slowdown in Avastin to level off in the next couple of quarters.

Sales growth of Herceptin, also used in breast cancer, slowed to 4 percent from 12 percent in the previous quarter, with Japan posting a 23 percent drop in sales of this treatment, down from a 30 percent rise in the second quarter.

Stripping out these large FX effects, it still appears to us that the Q3 miss is real, but that much of this miss comes from weaker than expected Japan pharmaceutical sales. Sales are still depressed by this year's terrible earthquake and tsunami, Bernstein analysts said.

PROMISING PIPELINE PROSPECTS

Analysts have been turning more upbeat about Roche's prospects thanks to a string of positive product news over the past few months -- a far cry from its disappointing year last year.

The group, which is aiming to get nine new blockbusters to market by 2016, recently won U.S. approval for its new skin cancer drug Zelboraf and its companion diagnostic, and European regulators have just recommended approval for Avastin in advanced ovarian cancer.

Investors are keenly awaiting new data on a number of promising medicines, such as breast cancer drug pertuzumab -- tipped to have sales of more than 1 billion francs, which Roche is aiming to submit for approval by the end of this year.

Roche, along with many other pharma companies, is also trying to deal with pricing pressures as cash-strapped governments seek to cap healthcare spending, and some analysts believe there still could be more cuts in Europe.

Despite these pressures, drug stocks have performed relatively well recently, outperforming broader indices on both sides of the Atlantic, and there are some signs that pipelines are starting to improve.

Investors will now await quarterly results from other major pharma players such as Abbott , GlaxoSmithKline , due later this month, and Pfizer

at the beginning of November for more insight into how big pharma is coping with pricing pressures.

($1=0.894 Swiss Francs)

(Editing by Mike Nesbit and David Holmes)

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