As expected, Roche Holdings delivered on its earlier promise of better growth and posted 6% increase in revenues in the second quarter of 2015, excluding the impact of exchange rate movements. Even after accounting for Swiss Franc appreciation against Euro and other currencies, sales were up 3% These are impressive results considering how other pharma companies are still feeling the lingering impact of the patent cliff. We believe Roche’s success is an amalgamation of strong research capabilities and smart pricing, which is all that’s needed to compete in the global pharmaceutical market. We see little downside to the stock considering Roche’s recent financial performance, its focus on broadly growing areas of oncology and immunology, and bubbling R&D pipeline. We are in the process of updating our price estimate for Roche Holdings in light of recent earnings and will have an update ready soon.
See our complete analysis for Roche
Cancer Franchise Is Gaining Ground
Cancer drugs (oncology) have always been the strongest point of Roche’s business, and constitute roughly 60% of the company’s value according to our estimates. Needless to say, the overall direction of this segment’s growth is likely to govern the stock movement.
At constant exchange rates, Roche’s pharmaceutical business saw topline growth of 5.5% in Q2 2015, driven by 8% growth in oncology segment and 23% growth in immunology. While cancer medicines added incremental revenues of close to $500 million, immunology drugs contributed incremental sales of around $550 million as MabThera, Actemra and Xolair saw significant ramp up. Both segments did well, but it must be noted that oncology segment was about 4 times as big as immunology in terms of revenues in the second quarter.
Consistent with the previous quarters, the big cancer franchises (such as MabThera/Rituxan, Avastin and Herceptin) continued to gain ground globally. Also, relatively new cancer drugs such as Perjeta and Kadcyla saw their sales jump by 72% and 65% respectively. The first line combination therapy of Herceptin and Perjeta for metatstatic breast cancer has helped push Herceptin's sales higher. Using such combination therapies in additional adjuvant areas, Roche can maintain its pricing power to stay competitive. It also appears that with longer treatment periods, it won’t be easy for healthcare providers to replace Roche’s current drugs with biosimilars quickly.
Roche’s Research Capabilities Remain Strong
Roche’s pipeline is bubbling with promising drugs, with three of them getting breakthrough designation from the FDA in the first half of 2015. These include Actemra/RoActemra in systemic sclerosis, Atezolizumab in PDL1 + non-small cell lung cancer, and Venetoclax in a certain variety of relapsed-refractory chronic lymphocytic leukemia. There is also emphasis on Perjeta, Kadcyla and Avastin for early, second line and adjuvant therapies in breast cancer, ovarian cancer and lung cancer. Gazyva has shown some interim positive results, and could be a significant drug for the company in future.
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