Roche Earnings Preview: Oncology Drugs And Tamiflu Will Help The Revenue Growth
Roche Holdings (NASDAQ:RHHBY) will report its Q4 2014 earnings on January 28th. We expect overall revenue growth to remain low, due to the continued impact of the decline in legacy drug sales. As always, the three main oncology drugs will continue to support the topline, although there could be an uptick in Tamiflu’s sales. Some of the recently launched drugs such as Perjeta and Kadcyla are likely to contribute greatly to incremental revenues. Roche has maintained its market leadership position in oncology (cancer) therapeutics for a long time. However, companies such as Merck, Bristol-Myers Squibb, Pfizer and AstraZeneca are showing keen interest in tapping this segment. We expect Roche to pump more R&D dollars to maintain its competent position.
Our current price estimate for Roche stands at $38.54, implying a premium of more than 5% to the market.
See our complete analysis for Roche
As Usual, Cancer Drugs Will Drive The Growth
Roche has a very strong oncology drug portfolio which includes Rituxan/MabThera, Avastin and Herceptin. The company’s overall oncology revenues accounted for around 62% of its total pharmaceutical sales during the first nine months of 2014. Any decline in sales of off-patent, maturing products is being compensated by the growth in the current portfolio and new launches. Avastin continued its strength in 2014 and grew its sales by 6% in the first nine months of the year, owing to strong adoption for ovarian cancer treatment in Europe as well as growing use for treatment of colorectal cancer. In November 2014, the drug was granted additional approval by the FDA for the treatment of platinum-resistant recurrent ovarian cancer. We expect Herceptin and Rituxan/MabThera to post modest growth as well.
Additionally, 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 the first nine months of 2014, the HER2 franchise saw strong growth of more than 20% globally, which essentially offset the decline in sales of Xeloda and Pegasys.
Bad Flue Season Could Spur Tamiflu Sales
The monthly sales data from drug retail chains such as Walgreen’s suggests that Tamiflu is seeing a strong uptick in sales, due to the spread of a particular strain of flu virus. Tamiflu is a relatively small drug for Roche as compared to its oncology stalwarts, but at times when the flu seasons is severe, the sales can improve dramatically. Additionally, the CDC has suggested prescribing Tamiflu and other similar drugs at the first sign of the symptoms to counter the Flu; this could also be a contributing factor. [1]
Situation In Europe May Have Mixed Impact
After a brief period of recovery, the Euro Zone is again showing signs of faltering. Government debt as a percentage of GDP has increased in several countries including Greece, Portugal, Italy, Ireland and France. Declining oil prices and the possibility of Greece exiting Euro have disturbed investor sentiment. The decline in European stocks is a manifestation of these events along with the fear of deflation. The possibility of certain austerity measures can weigh on the sales of pharmaceutical products. This impact may be partially visible in Roche’s fourth quarter sales, although the situation will get clearer in the first half of 2015.
As far as Roche’s fourth quarter results are concerned, the more visible impact will come from currency depreciation. Approximately 42% of Roche’s sales came from the U.S. in 2013, as compared to 39% in 2012. In the first nine months of 2014, this figure stood at 42.7%. The overall growth in the U.S. region is also higher than that in Europe and Japan. In short, the significance of the U.S. market is growing for Roche which means that the currency risk exposure is also increasing. In 2013, the Swiss Franc appreciated against the U.S. Dollar as well as Japanese Yen, which had a collective negative impact of 3% or 1.5 billion Swiss Francs. Considering the total revenue base and the fact that the U.S. accounts for 42% of the revenues, 1% appreciation against dollar will result in sales declining by roughly 200 million Swiss Francs. Looking at the exchange rate chart, it appears that the Swiss Franc reached its high somewhere in March 2014 against the U.S. dollar, and had been weakening since then until its recent un-pegging from the Euro. Its value has shot up and we are eager to hear from the company about the possible impact this will have on its business.
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- Roche and GSK set for sales growth in this year’s fast-spreading flu epidemic, FiercePharma, Jan 7 2015 [↩]