Description:
Roche, based in Basel, Switzerland, operates in two segments: Pharmaceuticals and Diagnostics. In the area of biotechnology, it’s the world leader. The company’s major products are: Avastin, Herceptin and Rituxan (oncology), Tamiflu (influenza), CellCept (immunosuppression) and NeoRecormon (anaemia).
Its business, although not risk-free, offers the best industry-wide potential. To achieve long-term growth and success in R&D, the company has, in past years, acquired majority stakes in a number of companies including, the principal established co-operations Genentech, a US biotech company, and Chugai, a Japanese pharmaceutical company.Its product pipeline is highly sustainable and the high level of innovation should drive regular market introduction over the coming 4 to 6 years. More than 60% of the company’s products are biologics, which offer a security buffer against set-backs in the traditional generic drug market.
Over the past few years, Roche’s oncology division has consistently demonstrated its capacity for innovation with its progress. As a result, up to seven phase-III assets are expected to report in the next three years. Furthermore, it’s expected that these assets could generate sales in execs of USD 10 billion per year by 2018. The oncology division’s new product generation (in both the study and development phases), is ground-breaking not only in terms of the molecules associated with it, but also for improving the standard of care.
Through its range of high quality and industry leading products, Roche is in a unique position to influence the global healthcare market. The company’s principal objective is to offer safer, more efficient, and personalized medicine.
Roche’s EPS growth is above the industry average; earnings visibility is high and attractive. On average, a successful product launch can immediately add 2-3% to the company’s top-line sales and up to 8% to EPS. Profitability ratios have consistently risen in recent years and price to book value ratios have lowered in line. It can be expected, given the company’s quality products, that pricing pressure will be low for the coming years which should help to maintain revenue growth.
Strengths and weaknesses analysis / Fundamental analysis:
Strengths:
- The company’s present block busters are patent-protected until 2019,
- Roche is the biggest biotech player in the world by sales,
- The company’s product pipeline is exceptionally strong with seven phase-III products set to launch in the coming 2 to 4 years, and a further 6 products in the late development stage,
- Roche is seeing exceptionally strong growth in EM,
- Roche has an excellent track-record in company acquisition and integration,
- Improving fundamentals occurring in the pharma sector are not yet priced-in,
- The company’s balance sheets are very healthy and permit an ongoing acquisition strategy.
Weaknesses:
- Roche’s sales depend strongly on previously acquired DNA-drugs,
- Roche is failing to make progress with the next-generation versions of DNA drugs,
- Roche’s profits are in danger should the US healthcare reforms materialize,
- Roche’s R&D is not immune, and could be setback by pipeline disappointments,
- More than 50% of its sales are generated by its key products: Avastin, Herceptin, Rituxan, Tamiflu, CellCept, and NeoRecormon,
- Government budget restrictions will put sales margins of its key products, Rituxan, Avastin and Herceptin, at risk,
- One of its principal competitors, Novartis, holds 33% of Roche’s bearer shares.