Roche’s New Drugs Aid Growth While Rituxan Continues To Slide In Europe
Roche’s (NASDAQ:RHHBY) recently released Q4 2017 earnings were about in line with expectations. Despite lower sales in Europe amid competition from biosimilars, Rituxan managed to post 1% overall growth for the year. Note that Rituxan sales were down 11% in Europe during the year. Avastin global sales declined 2% and Herceptin grew 3% during the same period. These three are the top selling drugs for Roche with total sales of over $19 billion in 2017, and all three drugs are nearing patent expiry in the U.S. as well, which will likely result in a signifiant drop in sales, as biosimilars enter the U.S. market.
Despite the concerns in Europe, Roche managed to post 5% growth in overall revenues on a constant currency basis. This can be attributed to continued growth in Perjeta sales, and a ramp up in its new drugs – Tecentriq, Ocrevus and Alecensa. While we expect these drugs to continue to ramp up in the coming quarters and beyond, it remains to be seen if they can make up for the expected sales declines for Avastin, Rituxab and Herceptin.
On the positive side, Roche has been successful in launching new drugs and has a strong position in the growing cancer therapy market with Tecentriq. We estimate that Roche’s phase 3 drug pipeline (not counting the enhancement of currently marketed products) can be worth as much as $42 billion, or nearly 20% of its current market value. Interestingly, a large chunk of this value is likely to be realized from a number of neuroscience drugs (See our interactive dashboard on Roche’s phase 3 pipeline). The initial performance of recently launched Ocrevus suggests that the company is looking to expand its lead in other therapeutic areas beyond oncology as well. Ocrevus is aimed at treating multiple sclerosis, and raked in over $850 million in revenue in 2017. The estimated peak sales for the drug is touted to be north of $4 billion.
Our price estimate of $33 for Roche implies a premium of around 10% to the market.
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