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Roche Posts Solid Sales for First 9 Months of '19, Ups View

Zacks Equity Research

Roche Holding AG RHHBY posted strong sales for the nine months of 2019, propelled by demand for new drugs amid biosimilar competition for legacy drugs. Consequently, the company also raised its guidance for 2019.

Roche’s stock has gained 15% in the year so far compared with the industry’s growth of 0.2%.

 

The company reported sales of CHF 46.1 billion in the first nine months of 2019, up 10% from the year-ago quarter.

The company reports results under two divisions — Pharmaceuticals and Diagnostics. All growth rates mentioned below are on a year-over-year basis and at constant exchange rates.

Sales at the Pharmaceuticals division increased 12%, driven by strong growth of Ocrevus, Hemlibra, Tecentriq, Perjeta and Avastin. The strong uptake of the newly introduced drugs more than offset lower sales of Herceptin and MabThera/Rituxan. The Diagnostics division sales climbed 4%, owing to its immunodiagnostic testing portfolio.

Results in Detail

Herceptin sales fell 9% owing to biosimilar competition. Perjeta sales jumped 34%, owing to increased demand for adjuvant early breast cancer therapy.

Sales of Ocrevus, the drug used to treat two forms of multiple sclerosis, surged 57% on continued global growth.

Immuno-oncology drug, Tecentriq (for advanced bladder cancer and advanced lung cancer) recorded 146% year-over-year growth in sales, driven by the inclusion of new indications — extensive-stage small cell lung cancer and triple-negative breast cancer.

Sales of lung cancer drug, Alecensa, surged 50% on solid growth across all regions. Oncology drug, Avastin, recorded 8% year-over-year growth.

Performance of the immunology franchise was driven by 9% growth in Actemra/RoActemra sales and 2% in Xolair sales. Gazyva/Gazyvaro sales jumped 40%.

Sales of ophthalmology drug, Lucentis, grew 9%. Roche has a collaboration agreement with Novartis NVS for this drug.

However, sales of Rituxan/MabThera declined 3% due to the entry of biosimilars in Europe.

Revenues at the Diagnostics division rose 4%, owing to 7% growth in Molecular Diagnostics. Centralized and Point of Care Solutions grew on the back of the immunodiagnostics business.

2019 Outlook Raised

Sales in 2019 are expected to increase high-single digits as compared to the previous guidance of mid-single-digit growth. The company expects core earnings to grow in line with sales.

Pipeline Progress  

Roche made encouraging pipeline progress in the third quarter. In particular, label expansions of immuno-oncology drug, Tecentriq, obtained approvals for various indications. The European Commission (EC) approved Tecentriq plus chemotherapy (nab-paclitaxel) for the treatment of adult patients with unresectable locally advanced or metastatic triple-negative breast cancer. Tecentriq in combination with chemotherapy (carboplatin and etoposide) was also approved in Europe for the initial (first-line) treatment of adults with extensive-stage small cell lung cancer. The EC also approved the drug in combination with chemotherapy (nab-paclitaxel) for the initial treatment of adults with metastatic non-squamous non-small cell lung cancer (NSCLC), who do not have EGFR mutant or ALK-positive NSCLC.

The FDA approved Rozlytrek for the treatment of adults with ROS1- positive, metastatic NSCLC.

The FDA granted Breakthrough Therapy Designation to Gazyva in adults with lupus nephritis and to Cotellic in patients with histiocytic neoplasms, who do not harbor the BRAF V600 mutation.

The FDA approved MabThera/Rituxan in combination with glucocorticoids for the treatment of granulomatosis with polyangiitis and microscopic polyangiitis in pediatric patients aged two years or older.

Update on Spark Acquisition

In February, Roche announced that it had entered a definitive merger agreement to acquire Spark Therapeutics ONCE. However, a regulatory review of the transaction is ongoing and the transaction will close by the end of this year.

Our Take

Roche’s performance in the first nine months was impressive, as strong growth in Ocrevus, Perjeta, Tecentriq and Hemlibra countered biosimilar competition in Europe for Herceptin and MabThera from the likes of Amgen AMGN.

The increase in guidance is impressive as well and reflects strong underlying growth from newly launched drugs.

Meanwhile, the company continues to progress with its pipeline, as it looks to restructure the portfolio beyond oncology into MS and hemophilia, among others. The approvals of Polivy and Rozlytrek should further drive sales.

Roche currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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