Roche’s Cancer Segment Is Likely To Remain Strong In Near To Medium Term

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RHHBY: Roche logo
RHHBY
Roche

Roche Holdings’ (NASDAQ:RHHBY) first quarter results solidified our near term confidence in the company’ oncology business. Its cancer drugs continued their growth despite already strong market share, primarily led by the success of relatively new drug Perjeta. In addition, Esbriet, which is an immunology drug, is off to a great start. As expected, Roche felt the negative impact of adverse currency movement which is going to impact its full year revenues as well. But the encouraging part is that some of the new studies have shown promising results for combination therapies, and oncology pipeline looks reasonably good. The company believes that biosimilar competition is still two years away, and appears to be spending its time creating defense strategies for current franchises.

Our current price estimate for Roche stands at $36.56, which is roughly in-line with the market price.

See our complete analysis for Roche

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Roche’s cancer drug sales account for more than 60% of its pharmaceutical revenues. Besides the current stalwarts such as Avastin, Herceptin and Rituxan, growing acceptance of Perjeta and Kadcyla has brought incremental growth to the company’s topline.

Perjeta saw its sales jump by 189% in 2014, and this growth stood at 82% in the first quarter of 2015 due to higher base for comparison. First line combination therapy of Herceptin and Perjeta for metatstatic breast cancer has helped push Herceptin’s sales higher. Using such combination therapies in additional adjuvant areas, Roche could potentially transfer pricing power to newer drugs and stay competitive against as far as Rituxan and Herceptin are concerned. Avastin continued its strength due to cervical cancer approval in EU. Additionally, the company expects that the drug be approved for non-small lung cancer in China in second half of 2015. [1] Gazyva is another silver lining on horizon with some interim positive results, and could well be a significant drug for the company in future. Overall, we feel that Roche is strongly positioned to defend its cancer line of drugs unless the pricing pressure from biosimilars becomes too much to bear and immuno-oncology competition goes up to the next level.

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Notes:
  1. Roche’s Q1 2015 Earnings Transcript []