Karen Andersen, CFA
Morningstar
312-384-4826
[email protected]
Roche (RHHBY) reported top-line results [for full-year] 2013 that were in line with our estimates, and core EPS of Swiss francs (CHF) 14.27 was below our CHF14.99 estimate. (CHF=$1.10.) However, our 2% top line and 5% core EPS growth estimates for 2014 fit with management guidance of low- to mid-single-digit sales growth (prior to a potential 400-basis-point headwind from currency) and higher core EPS growth.
We're encouraged by the progress Roche has made in advancing its late-stage pipeline, as well as the strength of its breast cancer and hematological oncology franchises, and we're not making any significant changes to our fair value estimate.
Roche's personalized medicine portfolio and dominance in the fields of oncology and diagnostics support its wide moat and stable moat trend ratings.
Sales rose 6% in local currencies to Swiss francs 46.8 billion, with core EPS growing 10% to CHF 14.27. Pharmaceutical division sales were up 7% to CHF 36.3 billion, driven by Roche's top three cancer antibodies (Avastin, Rituxan, and Herceptin) as well as sales from the launches of Perjeta and Kadcyla in breast cancer.
Diagnostics division sales were up 4%, with strong 8% growth in Professional Diagnostics partly countered by reimbursement pressure in Diabetes Care (down 3%).
Roche's bottom line is growing slightly faster than its top line. After excluding adjustments for the 340B sales reserves and past service income, core EPS grew 7% in 2013, with the incremental growth over sales primarily a result of lower interest costs (as the firm repays debt tied to the Genentech acquisition).
While CHF 1.5 billion small-molecule cancer drug Xeloda will see generic competition in 2014, we think Roche is in a strong position to continue to see growth from its Pharmaceutical division next year, as Kadcyla launches in Europe and as Gazyva sales ramp up.
We also expect continued strong growth from arthritis drug Actemra, which was recently approved in a new subcutaneous formulation in the U.S. that should be more competitive with therapies like Enbrel and Humira.
With 15 late-stage drug candidates, we're bullish on Roche's pipeline, particularly its PD-L1 antibody.
Steve Scala, R.Ph., CFA
Cowen and Company
617-946-3923
[email protected]
[Roche's 2H'13] sales of CHF 23,485 million (+2%) were CHF 88 million above our forecast. Key products beating estimates included Lucentis, Perjeta, Rituxan/MabThera, Avastin, Herceptin, and Pegasys, which combined were CHF 192 million ahead of our forecast, with Lucentis CHF 68 million and Perjeta CHF 50 million higher. Company guidance for 2014 is for sales growth of low- to mid-single-digit (at a constant exchange rate).
