Roche Holdings (PINK:RHHBY) is slated to release its yearly results on January 30. With no major patent expiry, we expect Roche’s total revenues in Swiss francs to grow at mid-single digits rate on the continued strong performance of key pharmaceutical drugs Rituxan/Mabthera, Herceptin and Tamiflu. This will make Roche one of the few large pharmaceutical companies that managed to grow revenues in 2012. The growth within its diagnostics franchise is also expected to lift growth. A year-over-year weak Swiss franc against the U.S. dollar during most of the year will aid to growth.
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Roche has a formidable presence in the oncology drugs market with a range of successful products such as Avastin, Herceptin, and Rituxan. They are some of the world’s largest-selling cancer drugs with each clocking over $5 billion in sales. In the pharmaceuticals segment, sales should increase as a result of strong performance by Herceptin (used for breast cancer) and Mabthera / Rituxan (used for several types of lymphoma, leukemia) due to their preference as first-line treatment and continued uptake in their target diseases. Avastin should also outperform overall pharma growth on the drug’s extension to ovarian and lung cancer.
A flu epidemic in the U.S. in Q4 should translate into higher sales of Roche’s Tamiflu. Roche’s Tamiflu is the only oral antiviral drug approved in the U.S. to treat patients of all ages. Hepatitis C drug Pegasys has also seen a strong uptake in demand during the year.
The sales of eye drug Lucentis, however, will decline due to increased competition. Pharma sales in the US and emerging markets are expected to grow by mid-single digit while the European market may see flat to slight decline in revenues for the year.
Diagnostic To Show Consistent Growth
Roche’s diagnostics segment should grow at mid-single digit on back of strong demand from hospital and private clinical laboratories for its professional diagnostics, molecular diagnostics and tissue diagnostics products. An expected decline in diabetes care and the applied science businesses amidst significant competition could offset the growth to some extent.
Roche’s stock has appreciated close to 40% since we launched the coverage of the healthcare company. While a rally in healthcare sector coupled with no major patent expiries in Roche’s drug portfolio are a few of the reasons, a weak U.S. dollar and Euro against Swiss franc during the later half of the year abetted the jump in the stock price as the Swiss company became costlier value wise. The Swiss franc is considered a safe haven and owing to euro zone issues, it has appreciated. We, however, believe that after recent rally, Roche could be trading beyond its fair value.
We will update our $46 price estimate for Roche Holdings after the earnings release.