Roche Earnings Are Likely To Show Resistance Against Competition
Roche Holdings (NASDAQ:RHHBY) will release its Q2 2015 earnings on July 23rd. [1] The company’s business is primarily centered around its cancer drugs which are biologics and have enjoyed little competition so far. But the looming threat from biosimilars and a stronger-than-usual push from other big pharma firms in immuno-oncology research have cast uncertainty over Roche’s future growth. We believe that the upcoming results are likely to show that serious competition is still a couple of years away. The launch of new drugs and new therapies using combination of existing drugs will lend support to the topline. This is despite the fact that Xeloda, Pegasys and Valcyte will see their revenues fall due to generic competition. Our price estimate for Roche Holdings (NASDAQ:RHHBY) stands at $36.56, which is roughly in-line with the market.
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Roche’s Strategy To Brace Against Competition
Perjeta saw its sales jump by 189% in 2014, and this growth stood at 82% in the first quarter of 2015 due to a higher base for comparison. The 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 biosimilars in future as far as Rituxan and Herceptin are concerned. Additionally, Avastin will benefit from the adoption for ovarian cancer treatment in Europe and growing use for treatment of colorectal cancer.
Pipeline Triggers Awaited
Roche’s pipeline is quite strong and the company is investing in the growing area of immuno-oncolgy. The programs under phase 3 trials suggest that the company is giving a strong push to Perjeta, Kadcyla and Avastin for early, second line and adjuvant therapies in breast cancer, ovarian cancer and lung cancer. We currently expect the drugs in the pipeline to drive incremental annual revenues of $6 billion in the next few years. However, if a few of the current phase 3 trials are successful and Roche expands much in adjuvant therapies, revenue from the pipeline drugs can easily cross $12 billion. In particular, Gazyva has shown some interim positive results, and could well be a significant drug for the company in future.
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Notes:- Invitation to Roche’s Half Year Results 2015, Roche Investor Calendar [↩]