Roche Posts Solid Numbers But All Eyes On What The Future Holds For The Company
Swiss pharmaceutical giant Roche Holdings (NASDAQ:RHHBY) released its Q4 2014 earnings recently. The company’s pharmaceutical sales grew by 4% year over year for the full year on constant exchange rate (CER) basis led again by its HER2 franchise, which comprises key cancer drugs. It was the strengthening of Swiss Franc that was a dampener, and resulted in overall net sales remaining relatively flat. On diagnostics side, the company reported 6% growth on constant currency basis which was again mitigated by the strengthening of Swiss Franc.
Roche remains a dominant force globally when it comes to cancer therapies and expects its revenues to grow in the low-to-mid single digit range this year, assuming constant exchange rates. However, the threat from biosimilars may become real by 2016 as Roche itself acknowledges, and the efforts from other pharmaceutical firms such as Merck and Bristol-Myers Squibb suggest that the competition in the oncology disease area can intensify in the near future.
Currency headwinds may also impact future revenues for the Basel-based firm. The Swiss National Bank recently announced that the Swiss franc would no longer follow a fixed exchange rate with the euro and this has resulted in the Swiss currency surging more than 15% to the euro. A strong franc deflates international revenue when it is converted into domestic currency.
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HER2 Franchise Leads Roche’s Growth
HER2 stands for Human Epidermal Growth Factor Receptor 2 and is related to certain aggressive types of breast cancers. These types of cancers are prevalent in women and Roche stands to gain from the continued launch of products in this therapeutic area. The launch of relatively new products such as Perjeta and Kadcyla has strengthened Roche’s HER2 franchise in the recent quarters. The company’s HER2 franchise saw a strong global growth of more than 20% in 2014. Perjeta saw its sales go up by 189% and was the biggest contributor to Roche’s incremental pharmaceutical revenues in 2014. Herceptin also continued to generate significant demand due to strong uptake in emerging markets and the increased duration of treatment for patients taking the drug in combination with Perjeta and Herceptin. It should be noted that Perjeta and Kadcyla have contributed a great deal to Roche and their combined incremental effect almost rivals that of Rituxan, Avastin and Herceptin. Tamiflu was also a notable performer and its sales increased 54% for the year. These sales were boosted considerably late in the year due to the U.S. flu epidemic. The chart below was taken from Roche’s presentation and shows the magnitude of incremental sales as well as the revenue growth for several key drugs.
Recent Events Have Not Been Encouraging For Roche
Roche is facing increasing competition in the oncology segment. Rivals such as Bristol-Myers Squibb and Merck have made significant breakthroughs recently by gaining approval for two immune-oncology drugs to treat advanced melanoma. [1] [2] These drugs essentially work by blocking the ability of the melanoma cells to hide themselves from the body’s immune system. While these drugs don’t directly compete with those from Roche because of their different initial disease focus, they could well in the future as all participants leverage R&D to discover alternative cancers that individual therapies can effectively treat.
Roche also suffered setbacks recently as its two drugs failed late stage clinical trials for certain conditions. These drugs include an already marketed cancer drug, Kadcyla, and an experimental Alzheimer’s disease drug, gantenerumab. Kadcyla was launched in 2013 and its sales for that year totaled $234 million. However, the uptake was very strong in 2014 and the drug’s revenues grew by 135%. As far as Alzheimer’s disease is concerned, Roche currently does not have any drug in this area. The progression in the clinical trials for this disease has been one of the key advancements that the company was making in neuroscience segment. Despite the recent blow, the company remains committed to finding a treatment for this disease. The estimates peg Alzheimer’s disease global patient count at 44 million, and this figure is expected to triple by 2050. [3]
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- FDA approves Keytruda for advanced melanoma, www.fda.gov [↩]
- FDA approves Opdivo for advanced melanoma, www.fda.gov [↩]
- Double blow for Roche as breast cancer, Alzheimer’s studies fail, Dec 19 2014, Reuters [↩]