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Roche (RHHBY) 2018 Sales Up on Solid New Drugs Performance

Zacks Equity Research

Shares of Swiss pharma giant Roche Holding AG RHHBY have gained 3.2% after the company reported solid sales growth in the fourth quarter and 2018, propelled by strong performance of new drugs. The company also provided an encouraging annual guidance for 2019.

Roche’s stock has gained 8.9% in the last six months, against the industry’s growth of 2.0%.

 

The company reported sales of CHF 14.7 billion in the fourth quarter of 2018, up 9% from the year-ago quarter. Sales for 2018 came in at CHF 56.8 billion, up 7% from the year-ago period. Earnings per share came in at CHF 18.1 in 2018, up from CHF 15.3 in 2017.

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 7%, driven by strong growth in Ocrevus, Perjeta, Tecentriq, Alecensa and Hemlibra. Growth in the United States offset the decline in sales in Europe stemming from biosimilar competition. Diagnostics division sales climbed 7%, primarily on the back of strong immunodiagnostic business.

Results in Detail

Herceptin sales grew 1% on demand in the United States and China, which more than offset the decline in Europe owing to biosimilar competition since mid-2018. Perjeta sales grew 27%, following increased demand in adjuvant early breast cancer therapy in the United States and neoadjuvant metastatic usage in Europe. Sales also got a boost from recent approvals in Japan and China. In total, the HER2-franchise (Herceptin, Perjeta and Kadcyla) was up 7%.

Strong Ocrevus sales further boosted the top line. The drug, used to treat two forms of multiple sclerosis (MS), continued to gain traction worldwide with sales of $2.4 billion. Approximately 80,000 patients were being treated globally as of December 2018.

Immuno-oncology drug, Tecentriq (for advanced bladder cancer and advanced lung cancer) recorded 59% growth in sales. Sales growth was driven by post-launch uptake in Europe, particularly in Germany, and launch in Japan. Sales of lung cancer drug, Alcenesa surged 76% and witnessed solid growth across all regions.  Oncology drug Avastin recorded 3% growth.

Performance of the immunology franchise was driven by increased sales of Actemra/RoActemra (12%) and Xolair (11%). Gazyva/Gazyvaro sales soared 40%, due to growth in the United States and Europe.

Sales of ophthalmology drug, Lucentis grew 18%. Growth was driven by the launch of prefilled syringes and increased sales in all approved indications. Sales of Xolair (up 11%) was driven by demand in chronic idiopathic urticaria and allergic asthma.

However, sales of Rituxan/MabThera slumped 8%, due to entry of biosimilars in Europe. Sales of Tarceva declined 36%, due to growing use of other therapeutic options. Sales of Xeloda (down 6%) continue to be hit by generic competition.

Revenues at the Diagnostics division climbed 7% on the back of solid performance of the Centralised and Point of Care Solutions (up 8%) unit, which was, in turn, propelled by Immunodiagnostics (up 11%). Tissue Diagnostics (up 10%) and Molecular Diagnostics (up 5%) also performed impressively.  Diabetes Care sales increased 2%.

2019 Outlook Raised

Sales in 2019 are expected to grow low to mid-single digits. The company expects core earnings to grow in line with sales.  Roche anticipates to increase its dividend further.

Pipeline Progress   

In December 2018, the FDA approved Tecentriq in combination with Avastin, paclitaxel and carboplatin for the initial treatment of people with metastatic nonsquamous non-small cell lung cancer (NSCLC) with no EGFR or ALK genomic tumour aberrations. The FDA granted priority review to Tecentriq in combination with carboplatin and etoposide (chemotherapy) for the initial treatment of people with extensive-stage small cell lung cancer (ES-SCLC).

The FDA granted accelerated approval to Venclexta in combination with azacitidine or decitabine, or low dose cytarabine for the treatment of people with newly-diagnosed acute myeloid leukaemia (AML). The drug has been developed in collaboration with AbbVie, Inc. ABBV.

In October, the FDA approved Xofluza (baloxavir marboxil) for the treatment of acute, uncomplicated influenza in people aged 12 years and older. 

The FDA granted priority review to Tecentriq plus Abraxane (albumin-bound paclitaxel; nab-paclitaxel) for the initial treatment of unresectable locally advanced or metastatic triple-negative breast cancer (TNBC) in people whose disease expresses the PD-L1 protein, as determined by PD-L1 biomarker testing.

Polatuzumab vedotin in combination with MabThera/Rituxan plus bendamustine has been granted Breakthrough Therapy designation and Orphan Drug status by the FDA for the treatment of adult patients with relapsed or refractory (R/R) diffuse large B-cell lymphoma who are not candidates for haematopoietic stem cell transplantation. The combination also secured PRIME designation and Orphan Drug status from the European Medical Agency (EMA) for the same indication.

Our Take

Roche’s performance was impressive in 2018 as it combatted biosimilar competition in Europe. Strong growth from Ocrevus, Perjeta, Tecentriq, Alecensa and Hemlibra has been more than offset by lower sales of MabThera/Rituxan and Tarceva. In particular, MS drug Ocrevus witnessed strong growth, driven by increased demand. 

Meanwhile, the company continues to progress with its pipeline as it looks to restructure the portfolio beyond oncology into MS and haemophilia, among others. Approval of new drugs and a potential label expansion of existing drugs bode well for Roche, as its legacy drugs like Herceptin and MabThera are facing competition from biosimilars. Novartis NVS has already launched its biosimilar version of Rituxan/ MabThera in Europe. Amgen AMGN also obtained the FDA approval for a biosimilar version of Avastin for treatment of five types of cancers.

Zacks Rank

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

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