Roche (RHHBY) 1H19 Earnings & Sales Up Y/Y, View Raised

Swiss pharma giant Roche Holding AG RHHBY posted strong results for the first half of 2019, propelled by strong performance of new drugs. The company also raised its guidance for 2019 for the second consecutive time.

Shares are expected to gain on strong results. Roche’s stock has gained 9.1% in the year so far against the industry’s decline of 0.8%.

 

The company reported sales of CHF 30.5 billion in the first half of 2019, up 8% year over year. Earnings per share came in at CHF 11.12 in the first half of 2019, up 13% from CHF 9.84 in the same period last year.

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 10%, driven by strong growth in multiple sclerosis (MS) drug Ocrevus, the new hemophilia drug Hemlibra, and cancer drugs Tecentriq, Perjeta and Avastin. The strong uptake of new drugs more than offset lower sales of Herceptin and MabThera/Rituxan. Growth in the United States offset the sales decline in Europe, stemming from biosimilar competition for Herceptin and Rituxan. Diagnostics division sales increased 2%, primarily on the back of strong immunodiagnostic business.

Results in Detail

Herceptin sales declined 9%, due to biosimilar competition in Europe and Japan from mid-2018. Moreover, patients switched to Kadcyla in the United States in the adjuvant setting which in turn impacted sales. The HER2-franchise (Herceptin, Perjeta and Kadcyla) was up 5%.

Perjeta sales grew 34% following increased demand in adjuvant early breast cancer therapy.

Strong Ocrevus sales further drove the top line. The drug, used to treat two forms of MS, continued to gain traction worldwide with sales of $1.7 billion.

Immuno-oncology drug, Tecentriq (for multiple indications), recorded 141% growth in sales. Sales growth was mainly witnessed in the United States, Europe and Japan. In the United States, growth was driven by the new indications of triple-negative breast cancer and extensive-stage small cell lung cancer.

Sales of lung cancer drug, Alcenesa, surged 50% and witnessed solid growth across all regions.

Oncology drug Avastin recorded 7% growth, driven by strong broad based growth, especially in China.

Performance of the immunology franchise was driven by increased sales of Actemra/RoActemra (+8%) and Xolair (+1%). Gazyva/Gazyvaro sales soared 36%, due to growth in the United States, Japan and Europe.

Sales of ophthalmology drug, Lucentis, grew 10%.

However, sales of Rituxan/MabThera declined 4%, due to entry of biosimilars in Europe and Japan.

Revenues at the Diagnostics division increased 2% on the back of solid performance of the Centralised and Point of Care Solutions (+3%) unit, which was, in turn, propelled by immunodiagnostics (+7%). Tissue Diagnostics were down 3% but Molecular Diagnostics was up 6% on continued strong demand for the cobas 6800/8800 Systems. Diabetes Care sales grew 1%, mainly driven by good uptake of the new Accu-Chek Guide and increasing sales of Accu-Chek Instant blood glucose monitoring systems.

2019 Outlook Raised Again

Sales in 2019 are expected to grow in the mid- to high-single-digit range (previous range: low to mid-single digits). The company expects core earnings to grow in line with sales. Roche anticipates to raise its dividend further.

Pipeline Progress  

The pipeline progress in the second quarter was encouraging. The FDA granted accelerated approval to Polivy (polatuzumab vedotin-piiq) in combination with bendamustine plus Rituxan for the treatment of adults with relapsed or refractory diffuse large B-cell lymphoma, who have received at least two prior therapies.

Rozlytrek (entrectinib) for the treatment of adult and pediatric patients with advanced recurrent solid tumors was approved in Japan.

The FDA also approved Kadcyla for adjuvant (after surgery) treatment of people with HER2-positive early breast cancer, who have residual invasive disease after neoadjuvant (before surgery) taxane and Herceptin based treatment.

The FDA also approved Venclexta/Venclyxto in combination with Gazyva for the treatment of patients with previously untreated chronic lymphocytic leukemia or small lymphocytic lymphoma. The drug has been developed in collaboration with AbbVie, Inc. ABBV.

The European Medicines Agency’s Committee for Medicinal Products for Human Use recommended the approval of Tecentriq plus chemotherapy for the treatment of adult patients with unresectable locally advanced or metastatic, triple-negative breast cancer.

Update on Spark Acquisition

In February 2019, Roche announced that it will acquire Spark Therapeutics, Inc. ONCE. Regulatory review of the transaction is ongoing. The acquisition is expected to conclude later this year.

Our Take

Roche’s performance in the first half of 2019 was impressive, as strong growth in Ocrevus, Perjeta, Tecentriq, Alecensa and Hemlibra combated biosimilar competition in Europe for Herceptin and MabThera from the likes of Amgen AMGN, among others. In particular, MS drug Ocrevus witnessed strong growth on increased demand.

The consecutive 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 haemophilia, among others. The approvals of Polivy and Rozlytrek should further boost sales in the rest of the year.

Roche carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

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