Roche Holdings (OTC:RHHBY) recently released its Q2 2014 results and re-affirmed its full year outlook. There was no surprise as cancer drugs, especially the newly launched ones, continued to drive its growth. The HER2 franchise grew stronger and there are some promising drugs in the pipeline that can help offset the impact of biosimilar competition to Herceptin in Europe next year. We believe that compared to the other big pharmaceutical firms, Roche faces lower risk given its focus on cancer therapies, which as a disease area offers the promise of strong growth. The company has a strong oncology drug portfolio and and boasts an investigational immunotherapy (anti-pld1, or MPLD3280A) that has been awarded breakthrough status by FDA.
Our current price estimate for Roche stands at $40, implying a premium of little less than 10% to the market price.
HER2 Franchise Drove Roche’s Growth
The launch of relatively new products such as Perjeta and Kadcyla has strengthened Roche’s HER2 franchise in recent quarters. HER2 stands for human epidermal growth factor receptor 2 and is related to certain aggressive types of breast cancers. This is one of the most common cancer types in women and Roche stands to gain from the continued launch of products in this therapeutic area.
In Q2 2014, HER2 franchise saw a strong growth of 20% globally, which more than offset the weakness in certain drugs, including Xeloda and Pegasys.  While much of this can be attributed to sales of Perjeta and Kadcyla, Herceptin continues to generate significant demand due to strong uptake in emerging markets and increased duration of treatment for patients taking the drug in combination with Perjeta and Herceptin. We note that Perjeta and Kadcyla contributed a great deal to Roche’s first quarter’s revenue increase too. In fact, the two drugs combined accounted for roughly $220 million in incremental revenues which almost rivals the incremental revenues that came from Rituxan, Avastin and Herceptin.
Broadly speaking, Roche continues to benefit from one of the strongest and most profitable drug portfolios in cancer therapeutics market. Three of its major drugs Rituxan/MabThera, Avastin and Herceptin are used for treating a variety of cancer forms including blood cancer, breast cancer and colorectal cancer. The combined sales from Oncology drugs account for more than 60% of Roche’s total pharmaceutical revenues.
How Does the Pipeline Look Like?
Roche’s drug pipeline is strong in that, out of 66 new molecules that are under clinical development, 12 are in late stage. Roche’s anti-PDL1 therapy, as noted above, has been granted breakthrough status by FDA. For lung cancer, this particular therapy has already moved into phase 3 trials. Additionally, the subcutaneous formulations of MabThera/Rituxan for blood cancer and Actemra/RoActemra for rheumatoid arthritis have been approved in Europe. These developments will help fuel Roche’s growth in coming quarters and will provide a hedge against the risk of patent loss few years down the line. In fact, Herceptin is set to face some competition from biosimilars next year in Europe.Notes:
- Roche’s Q2 2014 Press Release [↩]