Roche Should Remain Resilient And Grow Moderately In Q1
Roche (NASDAQ:RHHBY) will announce its Q1 2017 results on April 27. We expect Roche’s diagnostics division to see mid single digit growth, driven by expansion in international markets including China, and focus on high throughput laboratories with new products in the Cobas family. We also expect that, despite all the concerns surrounding looming competition and a slowdown in Avastin’s growth, Roche’s pharma business is likely to see a moderate uptick. Tecentriq is doing well, and Roche’s legacy blockbuster drugs Herceptin and Mabthera are still growing in the low to mid single digit rates driven by expansion in China, longer treatment duration, and continued uptake in vasculitis and rheumatoid arthritis. In addition, Herceptin and Perjeta are expected to continue to do well and there were two new FDA approvals in the first quarter which should marginally add to sales. These include EU approval of Alecensa for patients with previously treated ALK-positive NSCLC (non-small cell lung cancer) and Lucentis for myopic choroidal neovascularisation.
Our price estimate of $32 for Roche is in line with the market.
We also look forward to the development concerning Perjeta. We earlier stated that one of the key events to watch out for in 2017 is the result of the APHINITY trial, which explores the usefulness of Perjeta in an adjuvant setting. As it turned out, Roche’s stock jumped nearly 7% in March on positive results from this trial. The tests were specifically conducted for the combination of Herceptin and Perjeta for after surgery breast cancer. The results indicate that Roche has positioned itself fairly strongly to defend the franchise’s revenue by expanding further in combination therapy, and reducing direct competition with the upcoming biosimilar by Mylan. While there will be no financial impact in Q1 2017, we expect the outcome to ease the competitive pressure in the upcoming quarters.
Avastin is likely to see a sales decline despite expansion in international markets. The competition in the lung cancer market is increasing in the U.S., and nearly 15% of Avastin’s sales can be attributed to its use in lung cancer. This trend is likely to intensify as Tecentriq’s sales start ramping up and cannibalize Avastin’s.
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