Roche Holding’s Revenues & Earnings Will Likely Grow In Low To Mid-Single-Digits In 2019, Primarily Led By New Drugs
Roche Holding (NASDAQ:RHHBY) recently posted its full year 2018 results, which were slightly above our estimates. The company’s overall revenues grew in low double-digits, while adjusted earnings per share grew in low twenties percent (in USD) for the full year. This can be attributed to continued growth in the company’s relatively new drugs, such as Ocrevus, Perjeta, and Tecentriq. However, Rituxan sales continued to decline, given the loss of marketing exclusivity. Looking forward, we expect the company’s new drugs to more than offset the expected decline in some of the older drugs that have either lost or are about to lose market exclusivity. We have created an interactive dashboard ~ What To Expect From Roche In 2019. You can adjust various drivers to see the impact on our earnings and price estimate for Roche.
Expect Revenues To Grow In Low Single-Digits In 2019
We forecast Roche’s overall revenue to grow in low single-digits in 2019. While we forecast Immunology, and Infectious Diseases to see modest decline in revenues, other segments will likely see revenue gains. The decline in Immunology can primarily be attributed to MabThera/Rituxan. Oncology will likely see modest gains despite loss of marketing exclusivity for Rituxan and Herceptin. Note that these are important drugs for Roche, with combined sales of $12.4 billion in 2018. While the decline in sales due to biosimilars stood at $1.2 billion, the contribution of new drugs to the company’s top line was north of $3.3 billion in 2018. However, the decline will accelerate to north of $2 billion in 2019, in our view, given Herceptin’s loss of marketing exclusivity. Within Oncology, the company’s relatively new drugs ~ Tecentriq, Gazyva, and Alecensa are aiding the segment revenue growth, and we expect this trend to continue in the near term. These three drugs combined generated sales of over $1.8 billion in 2018. Among other Oncology drugs, Perjeta, which is usually used in combination with Herceptin for the treatment of breast cancer, is also doing well for Roche, with sales jumping 30% (y-o-y) to $2.8 billion in 2018.
Ophthalmology sales will likely see modest gains from Lucentis, which is used for the treatment of serious eye conditions, including diabetic retinopathy. Lucentis’ patent will expire in 2020, and it will likely see a decline in revenues. However, the company has launched an implantable device to extend the dosing interval, and the same will not be impacted by the patent expiry. It will be interesting to see how the demand trends for this device. Neuroscience is now one of the key growth drivers for Roche in the near term, given the trends seen in Ocrevus sales. The drug is used for the treatment of relapsing and primary progressive forms of multiple sclerosis. Ocrevus has been on a strong run in the recent past, and the revenues have grown 180% (y-o-y) to $2.4 billion in 2018. Ocrevus will likely be a key player in the multiple sclerosis segment, and could garner as much as $5 billion in peak sales. Looking at the company’s In-Vitro Diagnostics business, sales were up in mid-single-digits. The company continues to see double-digit growth in immuno-diagnostics, along with centralized and point of care solutions. This trend should continue in the near term as well. The company’s gross margins have more or less hovered around 80% over the past few years, and we expect it to be around the same mark in the coming years as well.
Overall, the company’s low single-digit revenue growth in 2019 will primarily be led by its new drugs. We forecast the adjusted earnings to be a little under $2.40 per share for the full year 2019, reflecting 3.5% y-o-y growth. Our price estimate of $38 for Roche Holding is based on around a 16x forward price to earnings multiple.
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