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Roche Grows in 2012

Zacks Equity Research

Roche Holdings Ltd. (RHHBY) recently reported 2012 results. Revenues grew 4% year over year to CHF 45.5 billion driven by solid demand for its cancer drugs and increased sales of diagnostic tests to clinical laboratories. Sales were also positively impacted by the weakening of the Swiss franc against the dollar and the Japanese yen. 

On a geographical basis, strong sales in the US and emerging markets, which more than offset weakness in Western Europe. Sales in Western Europe were hurt by pricing pressure and generic competition.  


All growth rates mentioned below are on a year-on-year basis and at constant exchange rates.  


Sales for the Pharmaceuticals Division climbed 5% to CHF 35.2 billion, driven by strong sales of MabThera/Rituxan (up 9%) and Herceptin (up 11%). Avastin returned to growth following its successful launch in ovarian cancer in Europe at the end of 2011. Growth was broad-based across the US (7%) and international markets (9%). Strong sales of Xeloda (up 9%) Pegasys (up 11%) along with newly launched Zelboraf, Erivedge and Perjeta also benefited 2012 segmental sales.


However, drugs such as CellCept, NeoRecormon and Bonviva did not perform well in 2012. Sales of these drugs were hurt by generic competition.  


Revenues from the Diagnostics Division went up 4% to CHF 10.3 billion, driven by solid demand for clinical laboratory solutions, professional, molecular and tissue diagnostics, which grew at a consolidated rate of 7%.  

Operating profit increased 11% to CHF 17.2 billion. Operating margin came in at 37.7% in 2012, up 2.1%. Core earnings per share (excluding restructuring charges and amortization and impairment of intangible asset) increased 10% to CHF 13.62.  


2013 Outlook  


Roche continues to expect sales in 2013 to increase in line with 2012 levels. Strong sales of drugs such as Avastin, MabThera, and Herceptin along with the newly launched products such as Perjeta, Zelboraf, Erivedge, T-DM1 are expected to contribute to 2013 growth. Sales are expected to be strong in emerging markets in 2013. Roche expects core earnings per share to grow at a higher rate than sales in 2013.   


Pipeline/Product Update 


The pipeline at Roche fared impressively during 2012.Roche received positive results on 11 of its 14 late-stage candidates in 2012. Roche launched three new cancer drugs in 2012. While Perjeta (HER2-positive metastatic breast cancer) and, Erivedge (advanced basal cell carcinoma) were launched in the US, Zelboraf (BRAF V600 mutation-positive metastatic melanoma) was launched in Europe. In addition, the company is positive about the approval of its HER2-positive metastatic breast cancer treatment, trastuzumab emtansine (T-DM1). The candidate has been granted priority review in the US and has been filed for approval in Europe as well.


Our Recommendation  


Roche carries a Zacks Rank #3 (Hold). However, other large cap pharma stocks, such as Bayer (BAYRY), Novo Nordisk (NVO) and Eli Lilly and Company (LLY) currently look more attractive with a Zacks Rank #2 (Buy).

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