Roche’s Q3’16 Performance Affirms Our Expectation

October 21st, 2016 by Trefis Team
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Roche Holdings (NYSE: RHHBY) reported its Q3’16 earnings on October 20th. The company posted a total revenue of CHF 12.5 billion for the last quarter, a growth of 3% year over year on constant currency basis. The results were in line with consensus. Going forward, we expect the company to post growth on account of increased uptake of Herceptin and Perjeta. Tecentriq, approved in May this year, is also building up to its potential. Overall we expect the company to post low to mid-single digit growth in Q4’16 and mid-single digit revenue growth in FY’17.

Our price estimate of $38 for Roche is under review as we update our model to reflect the results.

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The company reported strong performance of Herceptin and Perjeta. Herceptin growth was mainly due to increased uptake in longer duration treatment. Going forward we expect the volume demand to hold at present level with possibility low single digit growth on account of subcutaneous formulation. We also expect growth in Perjeta volume because of increased penetration in EU and Japan.

Roche reported decline in the sales of Avastin on year-over-year basis for Q3. The decline was mainly in the U.S. and Japan. In the U.S. weakness in demand for second line lung cancer drove down the sales. In Japan the decline was due to a mandated price cut. However, a volume increase compensated for the price decrease to some extent. We believe that decline in the U.S. is transient in nature and there should be recovery early next year.

Furthermore, Tecentriq is an important growth lever for Roche. The drug was originally approved for bladder cancer. Recently, it got approval for non-small cell lung cancer (NSCLC) as well. This has now set-up a three way competition between  Roche’s Tecentriq, Merck’s Keytruda and Bristol Meyer’s Opdivo, in large lung cancer market.

In totality, we expect the pharma division to post low to mid-single digit growth over the next couple of quarters.

Diagnostic Division Performs As Per Expectation

Diagnostic division posted growth of 7% on constant currency basis for the first 9 months of this fiscal year compared to the same period last year. The division contributes over 12% to company’s valuation as per our estimates. The growth is led by strong performance of immuno-diagnostics. The company has recently launched new products in its Cobas family targeting high throughput laboratories. As a result we expect the strength in this business to continue. Diabetes care segment experienced decline in revenue on account of reimbursement cut in the U.S. It has also launched Accu-Check Guide — a blood glucose monitoring system — in European market. While the patient pool is large, the market is highly competitive. As a result we do not expect any gain in market share. Overall, we expect the division to grow at a mid- to high-single digit rate.

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