Roche Ups Outlook, Sees Spark Buy By Year-End
New Medicines Help Group Lift Full-Year Guidance (Again)
Executive Summary
Roche presented another strong quarterly performance and raised its outlook again for the full year, as sales continued to be driven in the third quarter by its portfolio of new medicines. It still believes its delayed takeover of Spark Therapeutics will happen by year-end.
Roche’s strong growth has continued into the third quarter. Propelled by recently launched drugs, the Swiss group on 16 October again beat market forecasts and raised its 2019 full-year outlook for the third time this year.
Roche’s management is increasingly confident that it can ride out a wave of biosimilars entering the US market in coming months and continue growing earnings into 2020.
The family-led Swiss drug group said third-quarter group sales grew 13% at constant exchange rates, with the pharma division revenue up 15%, driven mainly by multiple sclerosis medicine Ocrevus (ocrelizumab), cancer drugs Perjeta (pertuzumab) and Tecentriq (atezolizumab), as well as the new hemophilia therapy Hemlibra (emicizumab).
Roche CEO Severin Schwan told journalists that third-quarter sales of the group’s newly launched products had been stronger than management had previously predicted, and that “based on the strong demand for our new medicines and continued progress of our product pipeline, we have raised the outlook for 2019, and I am confident that we will continue to grow beyond this year.”
The robust performance in the last three months meant that in the first nine months of 2019, group sales rose 10% to CHF46.1bn ($46.2bn) from a year earlier, while sales for the pharmaceuticals division were up 12%, at CHF36.6bn.
Given that overall performance, Roche raised the lower end of its full-year guidance and now sees sales growing “in the high single digits”, up from mid-to-high-single digits previously foreseen, with Core EPS (earnings per share) still growing in line with sales growth.
Schwan said the strong uptake of newly introduced medicines from Roche more than offset lower sales of Herceptin (trastuzumab) and of MabThera/Rituxan ((rituximab) in the latest quarter.
All regions contributed to third-quarter growth, including Europe, where Roche returned to sales growth, offsetting the arrival there of biosimilar rivals, the CEO said.
“In the quarter in Q3 we were up 5% in Europe. This really reflects the diminished impact of biosimilar losses in Herceptin and MabThera where most of the impact has already been felt and more than offset by the launches of the new products,” he said.
Growth was particularly strong in Roche’s US pharma operations, with sales there up 14% in the latest quarter over the same year-ago period.
That advance was helped by the very limited impact of US biosimilars to date, with the US still showing positive growth for Avastin (bevacizumab) and no increase in the rate of decline for Herceptin despite the launch of biosimilars versions of both products in July. (Also see "US Market For Therapeutic Cancer Biosimilars Will Be Tested By Mvasi, Kanjinti Launches" - Scrip, 19 Jul, 2019.)
The three-month sales update came one month after Roche held an R&D seminar in London, where senior executives outlined Roche’s unfolding success story and showcased more pipeline products which could deliver further expansion in 2020 and beyond. (Also see "Bucking Biosimilar Threat, Roche Sees Further Growth" - Scrip, 17 Sep, 2019.)
Asked on 16 October for a likely timeline of when more biosimilar rivals would arrive in the US market, pharmaceutical division CEO Bill Anderson replied: “we think a first biosimilar to Rituxan would come sometime in Q4, and in the next six months we would expect to see at least a couple of more biosimilars for Herceptin and on Avastin – and there will probably be at least one more biosimilar around the year end or early 2020.”
But CEO Schwan said that scenario was manageable because “we are rejuvenating our portfolio at a fast pace.”
“To put things into perspective, the new medicines that we’ve launched already represent 30% of pharma sales at this point,” the Austrian CEO said on 16 October. That’s up from 29% in the second quarter and 23% of total pharma sales in third-quarter 2018.
That message is resonating, and optimism is clearly growing amongst analysts over Roche’s growth prospects and its ability to overcome looming threats from biosimilars in the US and possible US pricing reforms. (Also see "Roche’s Pipeline Prospects Promise Steady Sailing To More Growth " - Scrip, 1 Aug, 2019.)
Bryan, Garnier & Co, which has made Roche its top pharma pick for the fourth quarter, summarized the situation in a 7 October preview research note, saying that Roche "is making the most spectacular recovery move.”
“A couple of years ago, the market was looking at the wall of patent expiries becoming closer and closer and was considering that Roche could not be able to avoid a period of declining sales and profits of three years, those being 2018-2020. The group convinced the market that it could do better than that in 2018 and then 2019 and now the very first comments about 2020 suggest no decline at the top line level."
Reacting to the strong third-quarter update, the brokerage firm on 16 October said that “now of course the question is far more about 2020, since a lot of the biosimilar impact has been postponed to next year. We believe Roche can at the very least deliver stable numbers, but some growth looks achievable too.”
No Spark Update
Roche had no news during its update, however, on the continuing delay to its plan to acquire Spark Therapeutics Inc., a US gene therapy group, saying only that it still expects the transaction to close by the end of this year.
Roche announced in February plans to acquire Spark for $4.8bn, but since then the deal has been postponed several times, with concerns from US and UK antitrust authorities about a potential monopoly in hemophilia seen by many analysts as being the most likely reason. (Also see "Roche $4.8bn Buy Sparks Hemophilia Gene Therapy Race " - Scrip, 25 Feb, 2019.)
Roche’s management during its third-quarter update declined to be drawn on the topic, either by journalists in the morning or on the analyst call later in the day. CEO Schwan would only say during both updates that the group “remains confident of closing the transaction this year.”