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Robust Results

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Karen Andersen, CFA
[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
[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).

The gross profit margin of 78.0% was 1.5 percentage points below our 79.5% estimate; R&D of CHF 4,557 million was CHF 85 million ahead of our estimate, but selling, general and administrative expenses (SGA) of CHF 5,335 million was CHF 14 million below our forecast. Non-operating expense was CHF 61 lower than our estimate; the tax rate of 22.2% was 0.8 percentage points below our estimate; share count was in line.

Management provided an update on its numerous pipeline candidates across all therapeutic areas (oncology, immunology, ophthalmology, and neuroscience).

Jonathan Aschoff, Ph.D.
Brean Capital LLC

Inovio Pharmaceuticals (INO) announced [on Jan. 23] that it is developing a DNA-based immune activator, IL-33, which was shown to be a potent cell-mediated adjuvant using Inovio’s DNA vaccine platform.

Based on IL-33′s potential to be a potent adjuvant with Inovio’s existing products, Inovio will combine IL-33 with its DNA vaccines and immunotherapies to target cancers and chronic viral infections in humans.

IL-33 is an addition to Inovio’s current portfolio of cytokine gene immune activators, which are IL-12 (being developed for HIV and will be evaluated for cancer in 2014) and IL-28 (being developed for HCV), and Inovio owns the patents on these three molecules.

Edward Nash
Cowen and Company
[email protected]

Inovio is also pursuing additional indications for VGX-3100, including cervical cancer and head and neck cancer arising from HPV…As the field of cancer biology is increasingly focused on immune mediated clearing of cancer by T-cells, we believe INO is well positioned and we remain bullish on INO’s T-cell vaccine franchise.

Roche licensed INO-5150 for prostate cancer and INO-1800 for hepatitis B, as well as the use of INO’s electroporation delivery technology Cellectra. A total of $412.5 million in milestone payments are possible with the deal.

Additional strategic partnerships are currently under discussion with other big pharmaceutical [firms].

Raghuram Selvaraju, Ph.D.
Aegis Capital Corp.
[email protected]

Inovio reported financial results for the quarter ended Sept. 30, 2013. The firm finished this period in a stable financial position, with roughly $46.2 million on the balance sheet, and subsequently received $11.1 million in additional funds, including an upfront payment from a corporate partnership.

We anticipate that this amount should fund operations into 2016…The third quarter was transformative, marked by a partnership deal with Roche Holding in September for a $10 million upfront payment, up to $412.5 million in future development-, regulatory- and sales-related milestones, and ascending royalties on net sales that could reach double-digit levels.


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