Roche: Strong growth in Pharmaceuticals more than offsets slow-down in Diagnostics in Q3

Fair Value CHF186 (+1%)                      BUY

News published on October Tuesday 16, 2012
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Roche today posted good third-quarter sales numbers with group revenues totalling CHF11.27bn, up 14.8%, and in line with our estimates, albeit ahead of consensus by around CHF150m.
Pharmaceuticals is solely responsible for the good performance during the quarter with International sales again growing in double-digit territory (+11%) and most of the major drugs performing ahead of expectations. However Diagnostics grew by a low 1%. Guidance is reiterated. To note also is that two molecules in development are behind schedule with filings postponed by one year for ocrelizumab in MS and lebrikizumab in asthma.

ANALYSIS

  • Sales at Roche grew by 4% in CER terms and 15% in reported terms during the third quarter, reaching CHF11,271m in total. The Pharmaceuticals division reported a 4% growth rate including 5% in the US and 11% in the International region but a decline of 2% in Western Europe. However Diagnostics posted a mere 1% growth during the quarter, a low point for years (no sign of a similar level in our records) with Diabetes Care and Applied Science showing a significant decline but Molecular Diagnostics and Tissue Diagnostics also suffering a marked slow-down. Roche is reporting “challenging market environments”. Europe and North America are the two regions where the slow-down is the most significant to report.
  • Overall, these numbers are good and although they are in line with our expectations, they are slightly ahead of consensus which was expecting CHF11.1bn in sales for the quarter. Currencies are partially responsible for that as their positive impact was 11pp. As already mentioned Diagnostics came out short of estimates. But Pharmaceuticals performed well.
  • Within Pharmaceuticals, it is worth noting that Avastin returned to double-digit growth for the first time since Q2 2010, with growth also in the US (+4%). Rituxan and Herceptin are still in the same range with sustained growth in all territories although more spectacular in emerging markets. Actemra is also progressing well and towards a blockbuster status that should be achieved next year. Recent launches are mixed however with Erivedge, Zelboraf and Perjeta all reporting sales numbers in-line or below estimates, i.e. CHF8m, CHF65m and CHF22m respectively. By region, the mix has not changed significantly: the International region is driving growth (+11%) while Western Europe is lagging behind and suffering from healthcare reforms (-2%). With +5% the US is doing fairly well, supported by introductions and Avastin recovery. To note is that the Lucentis decline has not accelerated sequentially.
  • Roche today confirms full-year targets, i.e. low to mid-single digit sales growth for the group and pharmaceuticals division as well as high single-digit Core EPS growth (+8% reported in H1).
  • On the R&D side, Roche reiterates that phase III trials for key drugs have just started (Zelboraf in adjuvant melanoma in Q3) or are about to start (MEK inhibitor and aleglitazar in Q4) whereas filing of T-DM1 occurred in Europe and the US in August. There is no confirmation yet of any priority review from the FDA but we think there are a few days left to receive notification. On the negative side, Roche faces two delays with ocrelizumab in MS (the high number of trials ongoing is making recruitment slower than expected) and lebrikizumab in asthma (manufacturing needs to be optimised) with filings now expected in 2015 (vs 2014) and after 2016 (vs 2016) respectively. As a reminder ocrelizumab is not in our estimates whereas lebrikizumab is for CHF32m in 2017.

VALUATION

  • We see marginal changes deriving from these quarterly sales with limited impact on our FV.
NEXT CATALYSTS
  • October 2012 : Priority Review for T-DM1 in breast cancer
  • December 2012 : Perjeta CLEOPATRA data (SABCS) & MabThera sc phase III (ASH)
Analyst :Eric Le Berrigaud / 33(0) 1 56 68 75 33 / eleberrigaud@bryangarnier.com
Sector Team : Mathieu Chabert, Martial Descoutures, Sébastien Malafosse

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