Roche’s Well Rounded Results Reinforce Its Growth Sustainability

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Roche Holdings (NASDAQ:RHHBY) recently released its Q3 2015 earnings and nine month year-to-date results. Taking into account the growth pressure on the pharmaceutical industry, the consistent threat of generics and the performance of big pharmaceutical firms in recent quarters, Roche’s results can be termed as impressive and well rounded. Excluding the impact of currency movements, the company’s pharmaceutical business has registered 6% to 8% growth in all key geographies except Europe. Additionally, its diagnostics business is doing reasonably well and has grown faster (on a constant currency basis) compared to J&J’s this year. Multiple acquisitions in this arena are likely to help Roche sustain the growth in the longer run. For us, Roche’s earnings report has strengthened our belief that the company is well positioned to combat the threat of biosimilars, and its continued focus on pipeline innovation will help it maintain leadership in Oncology.

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The company’s primary trends sustained themselves as the HER2+ drug franchise continued to drive Roche’s growth. For the first nine months of 2015, revenues from Herceptin, Perjeta and Kadcyla increased by 19% year over year with a substantial portion of incremental revenues coming from the latter two therapies. [1] The year-to-date sales of Perjeta and Kadcyla have exceeded a total of CHF 1.6 billion, though Herceptin, Rituxan and Avastin continue to be the dominant drugs with combined sales of more than CHF 15 billion. [1] We have stated on multiple instances that ensuring sustenance of these three key drugs is going to be a high priority task for Roche. Herceptin has already lost patent protection in Europe and will lose the exclusivity in the U.S. in 2019. So the company has been focusing on adjuvant and combination therapies to defend its successful franchises. HER2+ franchise will get boost in revenues from the approval of a Perjeta combination therapy in breast cancer in Europe. Roche has filed the data for combination therapy of Avastin and Tarceva in the EU and expects to get approval in the first half of next year. Also, Avastin has received regulatory approval in China for first-line non-small cell lung cancer.

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From a long term perspective, simply defense won’t be enough to protect this franchise. But then that’s not all that Roche is doing. The company’s drug pipeline, especially in immunotherapy and immuno-oncology applications, is promising and could produce some blockbusters in the next few years. The data from clinical trials of medicines such as atezolizumab, which is intended to treat bladder and lung cancer, and ocrelizumab, which treats tackle multiple sclerosis, has been positive. Roche has stated that it may file for ocrelizumab approval in the U.S. and Europe in the first half of 2016. Estimates suggest that the drug’s sales may reach CHF 2 billion in the next seven to eight years.

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Notes:
  1. Roche’s Press Release [] []