Roche Holdings Will Likely See Steady Earnings Growth Despite Loss of Patent Exclusivity For Some Key Drugs

by Trefis Team
Roche Holdings
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Roche Holdings (NASDAQ:RHHBY) recently posted its Q2 results, which were more or less in line with estimates. The company’s overall revenues grew 7%, led by a continued ramp up in Ocrevus, and Perjeta sales. Ocrevus, which is a new drug, has seen strong demand of late, and marks the best launch for Roche ever. Rituxan sales declined in low double digits in H1 2018, amid biosimilar competition in Europe. Looking forward, we continue to believe that Roche will likely see steady growth, as a decline in some of its blockbuster drugs due to patent expiry, will likely be offset by gains in its new drugs. We have created an interactive dashboard ~ What Is The Outlook For Roche Holdings ~ on the company’s expected performance in 2018. You can adjust the revenue and margin drivers to see the impact on the company’s revenues, earnings, and price estimate.

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We forecast Roche’s Pharmaceuticals revenue to grow in mid-single digits in 2018, despite it facing biosimilar competition for its blockbuster drug Rituxan in Europe. This can be attributed to an expected ramp up in sales of its newer drugs, primarily Ocrevus. Ocrevus has seen strong demand in the recent months, and the drug has already garnered $1 billion in sales in the first six months of this year. Apart from Ocrevus, the company’s new oncology drug – Tecentriq – is also expected to see strong growth in the coming years, as it is aimed at treating the most common type of bladder cancer – urothelial carcinoma. Roche is also seeing some growth in Perjeta, Kadcyla, Alecensa, and Gazyva within its Oncology portfolio. However, we forecast only a low single digit growth in segment revenues in the near term, due to an expected decline in its blockbuster drugs, primarily Rituxan, which now faces biosimilar competition in Europe, and it will also lose its U.S. patent exclusivity this year. Herceptin and Avastin are also expected to lose their patent exclusivity next year. It should be noted that these three drugs are the best selling drugs for Roche, with combined sales of over $19 billion in 2017. As such, the revenue growth in Oncology segment led by new drugs will be capped. In the long run, Roche’s pharmaceuticals business will benefit from its strong phase 3 pipeline, which includes several new compounds, including Idasanutlin, among others.

The company is also seeing robust growth in its Diagnostics business, which grew 6% in H1 2018. We continue to believe that the segment growth will largely be dependent on the emerging markets, as they have been experiencing rapid growth, and Roche is increasingly focusing on these markets. The company already holds a strong presence in markets like China, India, and Middle East. We currently forecast a low to mid single digit revenue growth for the full year.

Our $34 price estimate for Roche is based on $2.15 expected EPS in 2018 and a price to earnings multiple of a little over 16x. Our revenue forecast of $57.2 billion represents year-on-year growth of around 4%. Of the total expected revenues in 2018, we estimate $44.8 billion in the Pharmaceuticals segment, and In-Vitro Diagnostics making up for the rest. Our price estimate of $34 for Roche Holdings is a 13% premium to the current market price.


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