Karen Andersen, CFA
We think Roche’s (RHHBY) drug portfolio and industry-leading diagnostics conspire to create sustainable competitive advantages. With the U.S. launch of Perjeta in 2012 and the launch of Kadcyla in 2013, Roche is in a strong position to continue growing its breast-cancer franchise beyond Herceptin.
Now that pressure on Avastin breast-cancer sales has waned, Roche is beginning to see renewed growth, stemming from Rituxan and Herceptin (particularly in emerging markets) as well as strong momentum in newer products like Actemra. Biosimilar competitors to Rituxan have witnessed delays, and we think the firm’s strong portfolio and late-stage pipeline will enable five-year average earnings growth of 7%.
We expect pharmaceutical and diagnostic synergies to increase in the wake of the Genentech acquisition. While cancer remains Roche’s core strength, a late-stage pipeline including drug candidates in schizophrenia and cardiovascular disease could expand its reach beyond oncology.
Roche reported 2Q/1H 2013 results this morning [July 25] showing strong Core EPS results for 1H’13 driven predominantly by higher royalties in the Pharmaceuticals division. Guidance was not raised, because it’s open ended; but in our view, the combination of results and guidance should lead to consensus remaining unchanged for FY’13. With the pipeline moving in the right direction with a couple of Phase III progressions and good numbers, we expect the results to be supportive of the shares …
Roche reported strong results with core EPS of 7.58 Swiss francs (2.4% ahead of company consensus) on inline sales, with the majority of the beat coming from better profitability in both Pharma and Diagnostics. (One franc equals U.S. $1.08 as of July 29.) In Pharma, this was driven by higher royalty income, and in Diagnostics this was driven by the profits from better than expected sales falling to the bottom-line.
Roche 2013 guidance remains unchanged with sales growth in-line with 2012 (i.e. 4% in local currencies) and core EPS targeted to grow ahead sales and a further increase in the dividend.
Steve Scala, RPh, CFA
Cowen & Co.