LIBERUM: Podcast: Best idea of the week - Healthcare – which stocks are most immune to COVID disruption
In this week’s edition of Liberum's Podcast - Best Idea of the Week, Ed Blair talks to Liberum's Healthcare team, Graham Doyle and Alistair Campbell about the healthcare sector and which stocks are most immune to COVID disruption.
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24 Mar 20
ROCHE - BUY - Top Picks | CHF360(+24%) Roche initiates phase III trial to test Actemra in patients with severe Covid-19 pneumonia
ROCHE - BUY - Top Picks | CHF360(+24%) Roche initiates phase III trial to test Actemra in patients with severe Covid-19 pneumonia First evidence of efficacy was showed in a small trial in China No meaningful financial impact from the situation to date
19 Mar 20
LIBERUM: UK Small & Mid Cap Dispatches
Healthcare Sector Note, Alpha FX, Judges Scientific, Science in Sport, SMS, Oxford Biomedica, Strategy: Director Buying, Strategy: Fiscal Stimulus Cheat Sheet, Market Highlights
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18 Mar 20
LIBERUM: Morning Comment
Healthcare Sector Note, Alpha FX, Judges Scientific, Science in Sport, Compass Group, SMS, Oxford Biomedica, Strategy: Director Buying, Strategy: Fiscal Stimulus Cheat Sheet, Market Highlights
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18 Mar 20
LIBERUM: Healthcare - Anchor points through COVID-19
In this note, we summarise the likely impact of the COVID-19 outbreak on our coverage universe. We focus on 3 areas; 1) the likely impact on demand for our companies’ products/services, 2) the potential for supply chain disruption and 3) the potential for balance sheet risk to affect fundamental equity valuations.
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18 Mar 20
SECTOR | Pharmaceuticals | IBD: Abivax and Roche viewed as potential winners
SECTOR | Pharmaceuticals | IBD: Abivax and Roche viewed as potential winners Inflammatory Bowel Disease (IBD), a USD15-20bn market. This report follows a meeting we organised with a KOL. IBD is an umbrella term used to describe disorders that involve chronic inflammation of the digestive tract. It can be divided into two different diseases: ulcerative colitis (UC) and Crohn's disease (CD). UC is limited to the colon while CD can occur anywhere between the mouth and the rectum. IBD is split about 50/50 between UC and CD and affects about 1.2 million people in the adult population in both the US and EU5. The UC market is estimated to reach USD9bn in 2023 showing the highest annual growth of 4.8%/year. On its side, the CD market should reach USD13bn in 2026.
Roche Holding Abivax
06 Mar 20
Good 2019, despite ‘relatively’ sluggish Q4
Roche ended 2019 on a subtle note, with erosion of key off-patent drugs capping gains from new high-potential drugs like Ocrevus, Hemlibra and Tecentriq. Nevertheless, full-year sales growth was 9% CER vs. early-2019 guidance of low-to-mid single-digit growth. While the group’s pipeline – especially in oncology, remains impressive, relatively muted 2020 guidance (vs. Novartis) is an indication of the biosimilar impact eventually gathering momentum.
11 Feb 20
ROCHE: A mixed bag for the end of 2019 but a very reassuring 2020 guidance | BUY - Top Picks | CHF350(+9%)
ROCHE - BUY - Top Picks | CHF350(+9%) A mixed bag for the end of 2019 but a very reassuring 2020 guidance The end of 2019 was tougher than expected sales-wise Top-line miss is more than absorbed by lower tax rate A bullish guidance, sign of strong confidence
30 Jan 20
LIBERUM: Podcast: Best idea of the week - Healthcare - Pick quality growth in a stretched sector
In this week’s edition of Liberum's Podcast - Best Idea of the Week, Ed Blair talks with Liberum's Healthcare Team, Graham Doyle and Alistair Campbell about their Large Cap Pharma coverage. With the sector performing well in 2019 (+25%) and outperforming the broader market, Graham and Alistair discuss amongst other things US drug pricing, the sector trading at the lowest discount to Staples for 7 years and the favoured higher quality growth companies (Novartis and AstraZeneca).
ROG BAYN AZN NOVN SAN GSK NOVOB
23 Jan 20
LIBERUM: Healthcare - Pick quality growth in a stretched sector
The sector performed well in 2019, outperforming the broader market, as investors shrugged off US pricing risk. Admittedly, the macro outlook of low growth and low rates was supportive, but we fear this is now as good as it gets, with the sector currently trading at its lowest discount to consumer staples for at least 7 years.
ROG BAYN AZN NOVN SAN GSK NOVOB
22 Jan 20
ROCHE: The future looks increasingly bright in breast cancer | BUY - Top Picks | CHF350
ROCHE - BUY - Top Picks | CHF350 (+16%) The future looks increasingly bright in breast cancer Roche is more offensive than defensive in BC now TNBC is a second segment in which Roche is progressing Roche might also go wider in HR+ BC Meaningful upside to our numbers
17 Dec 19
ROCHE | Roche Diagnostics: Behind The Curtain | BUY - TOP PICKS, FV CHF350 vs. 340
A continuous trend of portfolio refocusing has been visible in the pharmaceuticals industry over recent years, including significant spin-offs. In most cases, the trend has created tremendous value for the originators and their shareholders. We assume that Roche has carefully observed this and that it may now participate.
06 Dec 19
LIBERUM: European Healthcare investor feedback - What's hot, what's not and which stocks are the most divisive?
In this note we share the key insights from our recent marketing in the UK and US during which we met with over 60 investors to discuss our 19 stock coverage list (including services, biotech and large cap pharma). The most talked about large cap stock was Novartis (BUY, our Top Pick) with AstraZeneca (BUY) also generating plenty of interest.
ROG AZN BAYN GSK NOVN NOVOB SAN ABC CLL CLIN HNT UDG SENS CTH FUM MLC PRTC SPI
15 Nov 19
MORPHOSYS: The amyloid approach is still very much alive | BUY | EUR125(+27%)
MORPHOSYS - BUY | EUR125(+27%) The amyloid approach is still very much alive What’s going on with aducanumab (Biogen)? Greater exposure to high dose is needed to show clinical effect What does this mean for gantenerumab (Roche/MorphoSys)?
Roche Holding MorphoSys
23 Oct 19
LIBERUM: Roche - Beware of biosimilar confusion
Consensus mid-term forecasts for the Big 3 are correct in our view however we do not think it fully understands the dynamics driving US biosimilar penetration. Losses in the White Bagging channel (c.25% of Big 3 revenues) will be rapid given the incentives for biosimilar prescribing.
21 Oct 19
Strongest quarter in eight years
Roche’s Q3 19 sales growth of 13% CER is the highest quarterly growth in the last eight years. In oncology, the newer drugs have clearly taken over the growth baton from the older ones, further supported by multiple sclerosis, haemophilia and immunology drugs. Despite the looming biosimilar risk, a third consecutive guidance upgrade this year is a reflection of the group’s sustained innovation and efficient lifecycle management.
18 Oct 19
ROCHE: Fourth annual guidance increase after strong Q3 numbers | BUY - Top Picks | CHF340(+18%)
ROCHE - BUY - Top Picks | CHF340(+18%) Fourth annual guidance increase after strong Q3 numbers Roche significantly beats consensus numbers in Pharmaceuticals No harm (yet) from biosimilars in the US Strong performance for Tecentriq and Hemlibra Roche raises its FY guidance for the fourth time in a row
16 Oct 19
Healthcare: Top Picks for Q4 2019: Galapagos and Roche
Roche stays in, Galapagos enters the list As we look to the quarter ahead, we believe it is reasonable to pick defensive stocks and to avoid as much as possible biotech and the most volatile names since the start of the campaign for the US Presidential elections is a risk to the sector in the period. In general terms, this is why we are going to start with only two names in the list, leaving the door open to additions in the course of the period to add one or two more, maybe at more attractive prices.
Roche Holding Galapagos
07 Oct 19
Cancer - Strategy for affordable care
The cancer burden is growing globally. Each year >18 million people are diagnosed, nearly 10 million die and the estimated economic cost exceeds $1 trillion. From early diagnosis to late-stage disease, cancer care often involves inappropriate or unnecessary interventions that drive costs but provide limited clinical benefit. Coupled with an increased understanding of cancer biology and rapid technological advances, this has been driving momentum for precision medicine, leading to patient and societal benefits. The use of biomarkers and sophisticated diagnostics is facilitating early intervention through robot-enabled minimally invasive surgery and locally delivered radiotherapy. Immuno-oncology has revolutionised cancer care, with the focus now on identifying combinations that further improve long-term outcomes. Liquid biopsies and companion diagnostics are increasingly being used to personalise therapy.
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07 Oct 19
Pharmaceuticals: Hot topics at ESMO 2019
Pharmaceuticals Hot topics at ESMO 2019 Presidential Symposiums: PARP inhibitors come first! The end of the battle between GSK and AZ in BRCA non-mut. pts? No groundbreaking news for PD-1/PD-L1s at the congress Limited FV swing factors at first glance
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25 Sep 19
Pharmaceuticals: Drug prices in the US: a new bill proposed by House Speaker Nancy Pelosi
Pharmaceuticals Drug prices in the US: a new bill proposed by House Speaker Nancy Pelosi The new bill is using the basket price’s idea again Republicans are not supporting the bill Just the start of a volatile year to come
ROG NOVN MRK SAN VLA AZN GSK IPN NOVOB UCB BAYN BSLN
20 Sep 19
ROCHE: PharmaDay 2019: not transformative, but aimed at sharing confidence in the pipeline | BUY - Top Picks | CHF340(+25%)
ROCHE - BUY - Top Picks | CHF340(+25%) PharmaDay 2019: not transformative, but aimed at sharing confidence in the pipeline Behind images from the outside, a profound change in practices Roche wants to remain a long-term play A rich agenda over the next 18 months We are introducing satralizumab to our sales model
17 Sep 19
ROCHE: Two more clinical successes announced | BUY - Top Picks | CHF340(+25%)
ROCHE - BUY - Top Picks | CHF340(+25%) Two more clinical successes announced Two positive trial read-outs are made this morning Tecentriq works in monotherapy in 1L PD-L1 high NSCLC patients Satralizumab is now ready to be filed A PharmaDay next Monday to be held in London
12 Sep 19
Pharmaceuticals: Lilly: Read-across from Q2 results for European companies
Pharmaceuticals Lilly: Read-across from Q2 results for European companies The profound change in mix in diabetes continues Talz on par with Cosentyx in psoriasis? Verzenio clearly ahead of Kisqali and moving into HER2+ BC?
ROG NOVN MRK SAN AZN GSK IPN NOVOB UCB BAYN BSLN
31 Jul 19
Another quarter, another upgrade
Roche continued its strong momentum and upgraded 2019 guidance for the second time. While the Q2 sales growth of 9% at CER was largely driven by Pharmaceuticals (+11%), Diagnostics’ (+4%) reflected a recovery from the one-off setbacks of Q1. The new drugs continued to hold up well, more than compensating for the erosion of the legacy drugs. As the company moves deeper into the biosimilar battle, it is this balance, which would be critical.
30 Jul 19
Pharmaceuticals: AbbVie: Read-across from Q2 figures for European companies
Pharmaceuticals AbbVie: Read-across from Q2 figures for European companies No inflexion in Venclexta’s sequential growth First sales booked for Skyrizi Biosimilars Humira continue to grab shares ex-US
ROG NOVN MRK SAN AZN GSK IPN NOVOB UCB BAYN BSLN
29 Jul 19
ROCHE: Increasing confidence in growth during the biosimilar phase | BUY - Top Picks | CHF340 vs. CHF332 (+29%)
ROCHE - BUY - Top Picks | CHF340 vs. CHF332 (+29%) Increasing confidence in growth during the biosimilar phase Dependence on soon-to-be-made-biosimilar drugs is decreasing Far more to come over the next 18 months The situation in the US remains the most significant overhang Our numbers and FV adjusted upwards again
26 Jul 19
ROCHE: A very solid first-half (incl. one-offs) and a guidance upgrade | BUY - Top Picks | CHF332(+26%)
ROCHE - BUY - Top Picks | CHF332(+26%) A very solid first-half (incl. one-offs) and a guidance upgrade Sales-wise, half-year numbers are very strong Half-empty, half-full? The guidance is increased again
25 Jul 19
LIBERUM: Morning Comment
Just Eat Video, Danone, Croda, Burford Capital, B&M, Bewin Dolphin Holdings, CLS Holdings, Marston's, NewRiver, Market Highlights
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25 Jul 19
Pharmaceuticals Biogen: Read-across from Q2 figures for European companies
Pharmaceuticals Biogen: Read-across from Q2 figures for European companies Good sequential growth in MS In-there Ocrevus is still shining Early days to detect any change in trend for Spinraza Biogen’s biosimilar (anti-TNF) franchise is growing steadily
ROG NOVN MRK SAN AZN GSK IPN NOVOB UCB BAYN BSLN
24 Jul 19
LIBERUM: European Pharma - Mixed sector fundamentals - Sanofi now Top Pick, Roche downgraded
We have revisited our sector view and individual stock calls. We remain neutral on the sector but see scope for very near-term outperformance from a supportive macro backdrop but expect this to be overshadowed by US pricing worries as the Democratic primaries gather momentum.
Roche Holding Sanofi
20 Jun 19
LIBERUM: Roche - Outperformance to stall – down to HOLD
12 months ago we believed that consensus was far too bearish on Roche as biosimilar concerns dominated the debate with little attention paid to new product potential. Since then consensus has upgraded mid-term estimates by 9-11% and the shares are up 33%.
20 Jun 19
LIBERUM: Best of the Week - Auto Trader, Quarterly Style Review, Eurocastle Investment, The AA, Novartis, Ricardo
The week's most insightful research and ideas. Liberum's most insightful and high-value research and commentary published this past week.
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26 Apr 19
New drugs mightier than the bio-similar erosion
Roche reports a strong start to the year and, consequently, upgrades the 2019 guidance. Q1 sales grew by 8% at CER with the growth coming predominantly from the pharma business (+10) as diagnostics (+1%) languished (an unpleasant surprise). The new drugs continued to strengthen, amid biosimilar competition for the legacy ones in Europe and ahead of the threat in the US. The outlook for both revenue and core earnings for the year has been raised.
18 Apr 19
LIBERUM: Roche - Another beat and raise - consensus to rise by 2-4%
Q1 2019 sales of CHF14.8bn (9% reported, 8% CER) beat consensus expectations by 4% driven by the Pharma business which was 7% ahead. The beat here was across the board however it was the new portfolio of products (Ocrevus, Perjeta, Kadcyla, Tecentriq and Hemlibra) that drove the majority of the beat coming in 17% ahead of expectations in aggregate.
17 Apr 19
LIBERUM: VIDEO: Healthcare - Rebate reform could be just what the doctor ordered
In these four short videos Graham Doyle discusses why rebates have spiralled out of control in the US driving a bubble worth $150bn annually, why this is bad for patients, how the US government is set to tackle it and why this could actually be good for large cap pharma.
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26 Mar 19
LIBERUM: Morning Comment
Healthcare Reform In-depth, Balfour Beatty, Computer Games update, Alpha FX, Aquis Exchange, Kier Group, ASOS, Science in Sport, Speedy Hire, Market Highlights
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20 Mar 19
LIBERUM: Healthcare - Rebate reform could be just what the doctor ordered
The industry has become hooked on rebates, driving a ‘gross to net’ bubble ($150bn in 2017 vs $42bn in 2007). As such, list prices, to which most patient out-of-pocket spend (OOP) is tied, are now on average 50% higher than net prices, impacting affordability and distorting R&D incentives. HHS intends to address this by requiring all Part D rebates to be 100% distributed to patients at the point of sale. This could lower OOP by c.20%, with government spend flat to -7%. For pharma, there is up to 5% revenue upside, but also the potential to remove the pricing over-hang that has dogged the sector since the 2016 elections.
ROG AZN GSK NOVOB NOVN SAN
20 Mar 19
LIBERUM: UK Strategy Monthly - Sterling volatility
Following the sharp Q4 2018 sell-off, the FTSE All-Share has had its best start to the year since 2013, returning 6.6% between January and February (Fig 1). Sterling has also appreciated, up 4.6% from 2 January, and has been highly sensitive to newsflow on both delays to Article 50 and progression of ongoing Brexit negotiations (Fig 2).
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07 Mar 19
LIBERUM: UK Strategy Monthly - Opportunity in the laggards
2019 has seen a strong recovery following the Q4 2018 sell-off, with the FTSE All-Share up 5.4% year-to-date (Fig 1). In light of January’s rally, we screen for attractive stocks that have underperformed the market (Fig 2).
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12 Feb 19
Another strong quarter, but followed by a subdued outlook
Roche ended the year on a good note – 9% CER growth in Q4 sales, with a solid performance across the portfolio, particularly diagnostics. Despite a biosimilar impact of ~CHF1.3bn (predominantly in Europe), the full-year sales grew by 7%, thanks to the new drugs, particularly Ocrevus and Hemlibra. The outlook for 2019 came in soft, on account of the imminent threat from biosimilars for three of its best-selling drugs in the US.
01 Feb 19
LIBERUM: Roche - 2018 results beat as does guidance, 2-5% upgrades to consensus
Roche released Q4 sales and H2 earnings figures for 2018. Revenues in Q4 of CHF14.8bn were 2% ahead of consensus driving a 2% H2 2018 EBIT beat and a 4% Core EPS beat. In fact, despite a first full year of biosimilar impact from Rituxan and half a year of Herceptin impact, Roche still managed to deliver 8% Core EPS growth at cc (ex-US tax reform benefit of 10%).
31 Jan 19
LIBERUM: VIDEO: European Pharmaceuticals - Plenty of noise in 2019: choose carefully
In these six short videos Liberum's Healthcare Analyst Graham Doyle looks at European Pharmaceuticals with a particular focus on US pricing, is the valuation of the sector attractive, do the earnings outlook and macro environment look favourable and his top and least preferred stocks.
ROG SAN AZN NOVN GSK NOVOB
14 Jan 19
LIBERUM: European Pharmaceuticals - Plenty of noise in 2019: choose carefully
The unsustainability of US drug pricing will continue to cap sector performance, in our view. In addition, the sector is not cheap on either a relative or absolute basis. Thus, despite a supportive macro backdrop and a reasonable EPS outlook, we retain our Neutral view. We prefer those names that have potential for EPS upgrades (or at least no downgrades), are fundamentally cheap (R&D ratio points to meaningful upside) and have some optionality (pipeline or M&A). Most Preferred is Roche, with Novo our Least Preferred.
ROG SAN AZN NOVN GSK NOVOB
10 Jan 19
LIBERUM: Something worth saying in pharma - Cancer gold-rush adds pressure for pharma to diversify
We've set out before why we believe pharma companies need to diversify their R&D to include more health economic, primary care, chronic disease targeted drugs - essentially because we think specialty drug price pressure in the US will grow as payers vertically integrate and focus on 'bang for buck'. The other side of the same coin, a push factor for diversification, is that specialty categories, particularly oncology, are becoming very overcrowded as an oncology gold-rush continues to ramp up. A recent review shows that the current industry clinical pipeline implies over 150 oncology launches versus just 9 in diabetes.
06 Nov 18
Magnificent ‘seven’ again as borrowed time nears an end
Roche delivered another strong quarter – group sales up by 7% at CER – pharma up 7% and diagnostics up 6%. New launches have been able to offset the impact of biosimilar competition for the bestsellers in Europe. The US continued to be the main contributor, while Europe the worst. The outlook for 2018 was retained – sales and core EPS growth in mid single-digit. The coming quarters will see biosimilars making their way in the US, posing a massive risk.
23 Oct 18
LIBERUM: Roche - ESMO data de-risks Tecentriq forecasts
Roche released detailed data from its lead immune oncology asset Tecentriq over the weekend at the European Society for Medical Oncology conference. We believe expectations were high for the data in triple negative breast cancer (TNBC) following a positive headline read-out in July while they were arguably less so for the earlier stage study in hepatocellular carcinoma (HCC). The data delivered in TNBC (overall survival hazard ratio of 0.62 in PD-L1 positive patients) should comfortably meet expectations, as should the HCC data. These two indications could allow Roche to deliver c.CHF2bn in peak sales from Tecentriq. With the existing indications delivering c.CHF700m and the potential for another c.CHF1bn from small cell lung cancer we believe consensus forecasts of CHF2.8bn by 2022 have been meaningfully de-risked.
22 Oct 18
LIBERUM: Roche - 2% beat driven by international Big 3 growth and new products, guidance reiterated
Roche reported Q3 2018 sales this morning of CHF13,969m (7% reported, 7% CER) which were 2% ahead of consensus. Big 3 revenues of CHF5,029m (-1% reported) were 5% ahead of consensus with international region growth largely offsetting biosimilar headwinds. New products also performed well with Tecentriq, Ocrevus, Hemlibra and Esbriet all beating expectations albeit Alecensa and Perjeta were slightly below expectations. Having upgraded at the Q1 and Q2 updates this year management reiterated guidance for revenue growth at mid-single digit constant currency and Core EPS growth broadly in-line with this excluding the US tax reform benefit (mid-teens if including this benefit). We would not expect much change to consensus on the back of this update and reiterate our BUY rating.
17 Oct 18
LIBERUM: Roche Holding AG - P3 pipeline ignored, EPS growth missed
There are eight Phase 3 assets which are unjustifiably ignored by consensus and if included add 8% to the market cap (16% de-risked). Management’s recent statements draw a line under the biosimilars overhang in respect of which we believe the Big 3 downgrade cycle has ended. We are 10% ahead of consensus 2022 EPS and expect underappreciated earnings growth and R&D optionality to drive continued outperformance (5% ahead of EU large cap since Nov 17 upgrade). Remains top pick on raised CHF275 TP. BUY.
11 Oct 18
LIBERUM: Roche - R&D call provides much greater clarity on biosimilars and highlights pipeline optionality
Roche hosted a virtual pipeline event yesterday. While the focus was on the group's pipeline (where consensus continues to ignore/not model a number of late stage assets), management was surprisingly direct on the group outlook for next year and to 2022. For 2019 it expects to grow both the top and bottom-line (consensus EPS growth of 2%). For the mid-term Roche commented that the 50% biosimilar erosion forecast by consensus was sensible (thus removing worries about a worse out-turn) but also highlighted 11 products (10 yet to be approved) where there was upside to consensus over that period as well as implying upside to the stable margin forecast in consensus. Net the event should allay concerns around biosimilar threats, de-risk consensus forecasts and stimulate interest in some of significantly underappreciated pipeline assets. Remains a top pick.
14 Sep 18
Lucky number seven leads to guidance upgrade
Roche reports 7% growth in its top-line for both Q2 (to CHF14.5bn) and H1 18 (to CHF28.1bn). Both the pharma and diagnostics businesses grew at 7% during the quarter, both in CER as well as reported. The US and international markets have been in the driving seat while Europe was debilitated by the biosimilar impact. Reported-core EPS for H1 grew by 8% (+19% including the effect of the US tax reform). Guidance upgraded again.
30 Jul 18
LIBERUM: Roche - 9% EBIT beat, guidance upgrade and positive pipeline developments
Roche reported Q2 sales and H1 earnings this morning. Q2 sales of CHF14,528m were 5% ahead of consensus driven by the Pharma business. H1 sales of CHF28,111m (7%, 7% CER) were 2% ahead, Core EBIT of CHF11,162m (10%, 10% CER) was 9% better than expected while Core EPS of CHF9.84 (19%, 20% CER) was 11% ahead. As a result of this performance management has raised guidance again, now expecting midsingle digit sales growth at CER (low single digit previously) and Core EPS growth broadly in-line with this (ex-US tax benefit, mid-teens including it). In addition to this, there was also positive data from the LADDER trial presenting the opportunity to potentially protect and even grow the Lucentis franchise while the company also announced the start of an adjuvant trial for Alecensa and a subcut co-formulation Herceptin/Perjeta combination. Retain BUY.
26 Jul 18
LIBERUM: Something worth saying in pharma - is pharma in bargain territory?
As investors take an early look at defensive names ahead of any roll-over in more cyclical sectors, we have consistently heard that pharma looks very cheap. Specifically, our view that much of the improvement in R&D productivity delivered by the sector has been priced in is challenged on the grounds that the re-rating has instead been the result of low rates and QE. The simplest piece of evidence for this is that pharma and consumer staples have enjoyed an almost identical re-rating since the 2009 rating trough, despite R&D being irrelevant to the latter
ROG NOVN SAN GSK AZN
13 Jul 18
LIBERUM: Something worth saying in Pharma - Keytruda perception creates I-O disconnect elsewhere
Until this year there was a paucity of late-stage clinical data in I-O outside of melanoma and 2L lung cancer. However, the first half of 2018 has been dominated by 1L lung cancer read-outs from Merck, Roche and Bristol-Myers. Based on this data alone, we believe sentiment and valuations (for the European players) now imply that Merck dominates in the lung-cancer market and is the likely winner in the other indications in which it is running late stage studies. This view has been reinforced by our recent fortnight of marketing in the UK and the US. While there is no doubt that Merck has established a lead in non-small cell lung cancer (NSCLC), there is still a possibility (albeit small) that other players can catch-up here. More importantly, beyond NSCLC we think there is evidence (from our I-O database, contact for more details) to show that other checkpoint inhibitors may have an advantage in certain indications. It is not that we think Merck won’t be a winner, but simply that at Roche (and to some degree even at Sanofi), the I-O opportunity is being mis-priced due to unjustified extrapolation of NSCLC data into other indications in the case of Roche and a focus on ‘being late to the party’ in Sanofi's. Hence we see an attractive risk/reward with regards to I-O for both names. At AstraZeneca (the other European I-O player of note), we believe the valuation fairly reflects its potential here given the data available.
ROG SAN UDG
05 Jul 18
LIBERUM: Healthcare: Amber warning - Insurer/PBM mergers to hit specialty pricing
In this note we explain how the planned insurer/PBM mergers (Aetna/CVS and Cigna/Express Scripts) could be the trigger for a correction in US specialty drug pricing. We have previously questioned the sustainability of uneconomic specialty drug pricing, but did not believe there was a specific catalyst. These mergers could be just that – amber warning for specialty care drug pricing.
ROG AZN GSK NOVN SHP NOVOB
02 May 18
LIBERUM: Roche Holding AG - Clear path to consensus beating growth
The market is concerned by biosimilars. In this note we show the building blocks for how earnings from new drugs more than offset biosimilar erosion. Furthermore consensus has come down to our level (built bottom-up on a channel by channel basis) on the Big 3 suggesting the outturn won’t be worse than it expects. Meanwhile there will be continued upgrades (12% ahead on 2022 EPS) from Ocrevus and Hemlibra. Added to this, the fundamental value is clear - 26% upside if historical R&D returns are delivered.
02 May 18
Ocrevus, Perjeta and Alecensa drive pharma’s robust growth
Strong growth reported for the quarter – likely to be the best quarter for the year, considering the ongoing erosion for MabThera and the imminent risk for Herceptin from biosimilars. Ocrevus stood out while Tecentriq was not very impressive. Hemlibra is steady so far in the inhibitor space and has bagged BTD in the non-inhibitor space, but some early news is slightly worrying. Overall, good past but challenges ahead.
30 Apr 18
LIBERUM: Roche - Quality beat and raise
Roche reported impressive Q1 2018 sales this morning. Group revenues of CHF13.6bn (5% reported, 6% cc) were 2% ahead of consensus with Pharma (5% reported, 7% cc) particularly strong, coming in 3% better than consensus. Importantly new product launches (especially Ocrevus) and line extensions performed well while the impact of biosimilars in Europe was about in-line. Management also raised guidance for sales and EPS to low single digit growth from stable to low single digit. We think this remains conservative as it likely factors in an overly bearish second half biosimilar scenario and no margin expansion. Roche remains our preferred Swiss name, BUY.
26 Apr 18
Overlooking the onslaught of biosimilars
Roche reported decent Q4 results. As expected, biosimilars have started to hurt and the pain is only likely to get worse with more biosimilar candidates. However, the strength of the pipeline has helped to sustain the momentum, with new product launches more than making up for the decline in legacy products so far. Ocrevus was a standout and Hemlibra holds a lot of promise. We maintain our ‘Add’ rating and will make modest changes to our estimates.
02 Apr 18
LIBERUM: Something worth saying in pharma - Readacross for Astra and Roche from yesterday's BMS dataset
Yesterday BMS published top-line data from its Checkmate-227 study of its PD-1/CTLA4 combination in 1L lung cancer. Given this is a crucial indication for both Astra and Roche, we set out in this commentary what we see as the possible implications for these names. Broadly speaking, and with the caveat that little detail has been released, we think the data could have modestly positive read-across for Astra (IO-IO combination thesis boosted but potentially dependent on ability to retrofit new biomarkers into ongoing studies). For Roche, we believe these data have limited implications as there remain at least 55% of patients who are TMB negative and thus not amenable for BMS' combination whilst at the current share price we believe close to zero is priced in for this opportunity despite positive IMpower150 data and multiple further studies upcoming.
Roche Holding AstraZeneca
06 Feb 18
LIBERUM: Roche - Underlying guidance a touch weak, expect upgrades through year - headline guidance well ahead on US tax
Roche released H2 2017 results this morning. Sales of CHF27bn were 1% ahead of consensus while an EBIT of CHF8.9bn was 2% below driven entirely by weaker Diagnostics business. EPS of CHF7.11 was 1% below consensus. Management expect sales growth to be stable to low single digit at cc, with Core EPS growth to be broadly in-line with this, excluding any impact from US tax reform. We suspect that this implied range of 0-3% is slightly shy of consensus at 3-4% (although it is unclear to what extent consensus already included some tax benefit), however we think management can upgrade this conservative guidance through the year. Including the impact of US tax reform, Roche expects Core EPS to grow at high-single digits, implying c.5% upgrades to consensus. BUY
01 Feb 18
LIBERUM: VIDEO: European Pharmaceuticals - Difficult but not impossible
In these two short videos Liberum's Healthcare Analysts Roger Franklin and Graham Doyle, look at the European Pharmaceuticals sector, why they think the sector will remain largely flat for 2018 and why Roche is the top pick. Click on image below to watch the videos.
ROG GSK SAN AZN NOVN SHP
24 Jan 18
LIBERUM: GlaxoSmithKline - The recovery has begun
At its trough after the Q3 results, GSK was down 15% in dollar terms. We strongly believed this was the wrong reaction to a cluster of overplayed concerns and the recovery has now begun (shares up 9% in dollars). Furthermore, the new CEO has made two strong hires and data from GSK’916 looks potentially transformational. However, we caution that further meaningful recovery is unlikely until there is clarity on Pfizer OTC, HIV trajectory post bictegravir and increased confidence on hitting 2020 guidance. This implies mid/late 2018. Too much value to be anything other than a BUYer.
18 Jan 18
LIBERUM: Roche Holding AG - Long-term value attractions with near-term catalysts
After a difficult 2017, we believe Roche has fallen out of favour with the sell-side and consensus is too pessimistic on its growth prospects (>7% ahead on mid-term EPS). This bearishness is reflected in its valuation, with the shares pricing in just breakeven R&D productivity, despite Roche delivering $1.25 historically. With capital deployment optionality (0.3x 2018 net debt/EBITDA) and potential earnings upside from US tax reform, combined with a string of under-priced pipeline read-outs in H1 18, we reiterate our BUY rating and our preference over Novartis (HOLD).
18 Jan 18
LIBERUM: European Pharmaceuticals - Difficult but not impossible
The sector’s growth is modestly accelerating, R&D productivity is as strong as it’s been for decades and balance sheets are healthy. But the valuation looks full, productivity cannot continue at its current rate and almost every company is facing a significant competitive threat to a key franchise, while the threat of US elections looms and the macro/market backdrop is unlikely to be supportive. We reiterate our neutral view on the sector and prefer those stocks where risks are overly discounted and there is upside to earnings and/or underappreciated catalysts. Most preferred Roche, least preferred Shire.
ROG GSK SAN AZN NOVN SHP
18 Jan 18
Multiple wins make the day
Roche’s much-awaited treatment for haemophilia A, Hemlibra (emicizumab/ACE910), has been approved by the FDA for patients with Factor VIII inhibitors. Roche also announced the data for the non-inhibitor community, wherein Hemlibra successfully met both the primary as well as the secondary endpoint. The second front to provide fillip to the share price was the positive top-line data from another eagerly-followed trial IMpower 150, evaluating checkpoint inhibitor Tecentriq’s combination with Avastin and chemotherapy as the first-line option for controlling disease worsening (also called progression free survival/PFS) in lung cancer patients. Roche announced that the trio demonstrated a ‘statistically significant and clinically meaningful’ results in the phase III study, which will form the basis for filing both in the US and Europe. Detailed results are likely to be made public in the annual congress of the European Society for Medical Oncology in Geneva in December 2017.
21 Nov 17
…and the bio-similars are here
Roche reported decent results in the third quarter, but the details and management commentary has fanned the already nervous market sentiments. Sales grew by 6% during the quarter, with both pharma (thanks to the new products and a strong contribution from immunology) and diagnostics growing by 6%. All sales growth numbers at CER unless specified otherwise. Europe deteriorating by 5% came as a surprise, although, at group level, this was compensated by 12% growth in the US, thanks to Ocrevus’s robust performance (sales of CHF308m). All the top three rankers were more underwhelming than what we had expected – Avastin down by 4% (flat in Q2), Herceptin flat (+4% in Q2) and Rituxan managing just 1% growth (+3% in Q2). Tarceva (-16%), Tamiflu (-61%) and Esbriet (+3%) added to the woes, but a bigger cause of concern was weak Tecentriq, which declined on a qoq basis (CHF118m vs CHF124m in Q2 17). The diagnostics business (CER growth numbers available only for 9M) was driven primarily by Asia Pacific (+15% CER for 9M), while pricing and reimbursement issues in the US diabetes care pulled down the growth in the geography to 1% for 9M (vs +4% in 9M 16). Business-wise, the highest contribution in growth came from centralised and point of care solutions (+7%; driven by Asia Pacific) and tissue diagnostics (+13%; driven North America and EMEA). The molecular diagnostics business (+3%) continued to see growth in the underlying molecular business (+4%) but a decline in the sequencing business. The company reports only top-line numbers in Q3. 2017 guidance of mid single-digit growth in both sales and core EPS was maintained.
27 Oct 17
Strong Ocrevus launch discredited by R&D glitches
Roche’s Q2 sales growth of 6% at CER (+4% in Q1) was largely driven by pharma (+7% to CHF10.2bn), while the Diagnostics business was slower at 4% growth to CHF3.1bn (vs +6% in Q1, +5% in Q4 16, +8% in Q3 16 and +8% in Q2 16). H1 scored a CER 5% growth at the group level, implying 5% growth each in the Pharma and the Diagnostics businesses. NB all sales growth numbers are in CER, unless mentioned otherwise. Nearly half of the pharma’s H1 growth came from the strongly trending new products, Tecentriq, Ocrevus and Alecensa, while the mature ones such as Tarceva, Tamiflu, and Pegasys succumbed to increasing competition. Despite weaker growth, Diagnostics remained at the top of the IVD market, which grew by ~4% in H1 17, thanks to the robust immunodiagnostics business (+13%) within the centralised and point care solutions (+8%). In terms of geographic performance, although the US (+10%; +6% in Q1) continued to be the biggest contributor to the pharma sales during the quarter, the International markets (8%), primarily China, stood out as Europe came in flat after 1% growth registered by both the geographies in Q1. While MabThera/Rituxan (+10%), Avastin (+15%) and Tamiflu (+222%) were the main drivers boosting the International markets, they were the spoilers in Europe (-3%, -7% and -96%, respectively). The diagnostics business, too, was driven by the international markets, such as Asia Pacific (+13%) and LatAm (+8%), as the developed markets of the US (+1%) and Europe (+3%; includes the Middle East and Africa) remained mediocre. Adjusted operating income for H1 (according to our calculations) came in ahead of our expectations at CHF9.6bn (+17%). Higher investment in marketing of new products and the R&D of the pharma business were countered by lower R&D in diagnostics and better control on the general and administrative front. The company-reported core operating profit grew by 3% to CHF10.1bn, implying a margin decline of 91bp. Growth was pulled down by the partial impairment of the Esbriet-related intangibles acquired as part of the InterMune acquisition. The outlook for both revenue and core EPS was revised up from low-to-mid single-digit to mid single-digit.
13 Sep 17
Strong quarter, no major surprises
Roche reported an in line performance in Q1, although it reported only the top-line numbers. Group sales grew by 4% (vs 3% in both Q3 and Q4 16) at CER to CHF12.9bn, with the pharma business growing by 3% to CHF10.2bn and diagnostics by 6% to CHF2.8bn. All revenue growth numbers are in CER unless mentioned otherwise. The US market (+6%) contributed 94% of this growth while Japan languished at 2%, and Europe and International markets barely managed 1% growth. The highlight of the quarter was Tecentriq which generated sales of CHF113m. Also, five of the top ten drugs and all of the recent launches clocked double-digit growth. In terms of laggards, Tamiflu (-27%) was the biggest loser followed by Tarceva (-19%) and Avastin (-2%). In the diagnostics business, all segments barring molecular diagnostics (-2%) registered healthy growth. The outlook for 2017 was maintained at CER sales growth in low to mid single-digit and core EPS in line with sales.
01 May 17
One of the two most awaited drugs for Roche, Ocrevus, has been approved by the FDA (the other one is haemophilia candidate ACE910). In clinical trials, Ocrevus has shown exceptionally compelling results in treating multiple sclerosis (MS) drug along with a sound side-effect profile.
29 Mar 17
Newsflow on pipeline and biosimilar development to be more meaningful this year
Roche’s Q4 sales grew by 3% at CER (all sales numbers at CER unless specified) to CHF13.1bn. The deviation from our forecasts segment-wise were balanced at the net level – the better performance by the pharma business (+3% vs 2% in Q3) ironed out marginal underperformance in the diagnostics business (+5% vs 8% in Q3). For the full year, Pharma grew by 3% and Diagnostics by 7%, stepping up to group sales growth of 4% to CHF50.6bn. By therapeutic area for the year, oncology (64% of pharma sales) grew by 4%, immunology (18% of pharma sales) by 10%, neuroscience by 2%, while infectious diseases and ophthalmology (which only has Lucentis) declined by 14% and 10%, respectively. Adjusted operating profit of CHF16.4bn for the year was in line with our expectations, benefiting from better control on general and administrative expenses. On the other hand, we do not expect much respite on the R&D front as the company invests heavily in the line-up of drugs in the pipeline. The core EPS (CER) growth at 5% to CHF14.53 met management’s guidance of higher-than-revenue-growth guidance of low to mid single-digit. However, if we exclude the one-time gain of CHF426m, pertaining to changes to the pension plan in Switzerland, growth came in at 2%, slightly behind guidance. Geographically, the US pharma reported a better performance during the quarter (+3% vs +1% in Q3) as did Japan (+3% vs -3% in Q3 which coincided with the bi-annual price cuts) and International market (+3% vs +2% in Q3), although Europe was slower (+2% vs +5% in Q3). The US was driven by MabThera/Rituxan (+3%), Activase (+46%) and Xolair (+8%), offset to some extent by Avastin (-10%), Lucentis (-14%), Tarceva (-8%) and Cellcept (-31%). Europe, on the other hand, had most of the mature drugs in the red but was driven by Perjeta (+22%) and Actemra/RoActemra (+14%). The diagnostics business was driven by centralised and point of care Solutions (58% of diagnostics sales; grew by 9% for the year, primarily on the back of immunodiagnostics business), but offset to some extent by pricing pressure in the diabetes care business (18% of diagnostics sales; declined by 4% for the year). Molecular diagnostics and tissue diagnostics remained steady (7% and 14% at CER, respectively, for the year). Geographically, Asia Pacific reported the highest growth at 16%, driven primarily by China. In 2017, Roche expects sales to grow low to mid single-digit, at constant exchange rates. This, according to management, factors in the scenarios on potential catalysts during the year, including biosimilars and the APHINITY trial (which recently moved in the favour of the company). Core earnings per share are guided to be in line with sales growth.
20 Mar 17
Nothing wrong but sentiment in a dull stretch
Roche’s Q3 sales were marginally shy of the estimates at CHF12.48bn (vs our estimate of CHF12.56bn and the consensus estimate of CHF12.64bn), primarily due to the uninspiring performance of the mature drugs in the US. Nine months’ revenue came in at CHF37.5bn. These numbers represented (at CER) growth of 3% for the quarter and 4% for 9m. Forex had a positive impact of 150bp in Q3. The Pharma segment was up by 2% (vs 5% in Q2) to CHF9.7bn while the diagnostics business continued its robust performance at 8% growth (vs 8% in Q2) to CHF2.8bn. Of the main drugs in Pharma, while Herceptin (+4%), Lucentis (-1%), and Perjeta (+24%) came in ahead, Avastin (-3%), Tarceva (-18%), Xolair (+13%), Kadcyla (+5%) and Tamiflu (-23%) fell short of our expectations. The US market (+1% vs 5% in Q2, 3% in Q1) was hamstrung by MabThera (-3% vs 6% in Q2 and flat growth in Q1), Herceptin (flat vs +6% in Q2 and +4% in Q1), and Avastin (-9% vs flat in Q2 and -2% in Q1). While Europe (+5%) remained stable (vs 6% in Q2 and 5% in Q1), Japan languished in the second consecutive quarter (-3% vs 1% in Q2 and 4% in Q1), primarily due to price cuts in Avastin (although the 10.9% price-cut was narrowed to a decline of 6% at the sales level due to support from the volumes). The Diagnostics business saw a healthy Asia Pacific (+17% growth in 9m was marked by 24% growth in China) drive the 9% growth in the professional diagnostics sub-segment (~58% of diagnostics sales). The new high-volume testing immunoassay solution, Cobas E 801 (launched in June 2016) was reported to be ramping up fast on the back of the productivity and efficiency gains it offers. The second biggest sub-segment, diabetes care (18% of diagnostics sales), continued to reel under pricing pressure and the continued run-off of the lower Medicare prices to private plans. Management expects the turnaround by 2017. The remaining two segments – molecular diagnostics (16% of diagnostics sales) and tissue diagnostics (8% of diagnostics sales) – grew by 6% and 15%, respectively during the quarter. Sales guidance for the year was maintained at low-to-mid single-digit at CER, while the core EPS growth is guided to remain ahead of sales growth. The dividend is likely to increase from the 2015 level of CHF8.1 per share (we expect it to increase to CHF8.3 per share).
25 Oct 16
Investment-heavy H1 while top-line remains strong
After two consecutive quarters of 4% yoy growth, Roche reported 6% growth in Q2 16 to CHF12.6bn, coming in ahead of our as well as consensus estimates. NB All sales numbers at CER, unless mentioned otherwise. The quarter was driven by 5% growth in Pharma (to CHF9.7bn, +7% in CHF) and 8% growth in Diagnostics (to CHF2.9bn, +8.2% in CHF). The weak Swiss franc against the Japanese yen, Brazilian real and the euro boosted reported sales by another percentage point during the quarter.
26 Jul 16
Strong Q1 with favourable forex impact
Roche begins the year with solid sales growth in Q1, coming in marginally ahead of our expectation. Total sales grew by 4% (same as Q4 15 growth rate) at CER (+5% in CHF, thanks to a stronger dollar and Japanese yen benefit, offset to some extent by devaluations in Argentina as well as in Venezuela) to CHF12.4bn (vs our expectation of CHF12.2bn). NB All growth numbers at CER unless specified otherwise. The Pharmaceuticals division grew by 4% (to CHF9.8bn, +5% in CHF), while the Diagnostics increased by 5% (to CHF2.6bn, +4% in CHF). Europe grew faster at 5%, driven by Perjeta (+65%), MabThera (+5%) and RoActemra (+17%). US growth of 3% was driven by Herceptin (+4%), Perjeta (+15%), Esbriet (+127%) and Xolair (+22%), offset to some extent by lower Avastin (-2%), Tamiflu (-15%), Lucentis (-13%) and Tarceva (-15%). The Diagnostics business grew on the back of a strong performance in Asia-Pacific (+16%; particularly China which grew at 24%) and LatAm (+21%) in immuno-diagnostic, molecular and tissue diagnostics businesses. The company does not give details on profitability in the quarterly results but maintained the annual guidance of core EPS growing faster than low-to-mid single-digit growth in sales.
24 Apr 16
Robust top-line pulled down by substantial one-offs and investments
Roche’s Q4 sales increased by 4% at CER (-1% in CHF) to CHF12.6bn, driven by 3% growth at Pharma (CHF9.6bn, -1% in CHF) and 7% at Diagnostics (CHF3bn, flat growth in CHF). For the full year, sales increased by 5% (+1% in CHF) to CHF48.1bn – Pharma +5% (+2% in CHF) and Diagnostics +6% (flat in CHF). The growth was fuelled by the oncology and immunology portfolios, and by the immuno-diagnostics business within professional diagnostics (+8%). These numbers were slightly ahead of our expectations; we had estimated sales of CHF47.9bn (vs CHF48.1bn in actuals). Geographically, the US did a better job than our expectations with 6% growth (+11% in CHF) in pharma and 3% growth (+7% in CHF) in diagnostics (where it is reported as North America), while Europe (+4% CER and -7% CHF growth in pharma) languished. The adjusted gross margin decline was steeper than our expectation at 370bp, due to higher manufacturing and sourcing costs, amortisation of Esbriet-related intangibles (acquired as part of the InterMune acquisition) and inventory write-offs (worth CHF539m for Esbriet) in the pharma business. Operating profit in the diagnostics business was also impacted by higher research expenses in professional diagnostics and on-going investments in the sequencing business along with price erosion in the diabetes care business. Net income came in far behind our expectation, further run down by higher-than-expected restructuring costs (CHF1.1bn vs our expectation of CHF300m) and an unforeseen forex loss of CHF470m booked within net financial income. The company ended the year with a net profit of CHF8.9bn (vs our estimate of c.CHF11bn). The company's reported core net profit came in at CHF11.6bn (core EPS 13.49). As a reminder, the company defines core numbers by excluding restructuring charges, amortisation, impairments, legal charges, business combinations and pension plan settlement, etc., from the reported numbers. This is a general practice followed by Big Pharma; however, we exclude only the restructuring charges to arrive at adjusted numbers, which explains a substantial difference between our core/adjusted numbers and the company's reported core numbers. The restructuring cost exceeded our expectations, following the decision in November 2015 to reorganise the manufacturing network for small molecules. Of the targeted CHF1.1bn, CHF301m pertained to the Diagnostics business and remainder to the Pharmaceutical division. The programme involves upgrading the manufacturing capability towards producing specialised medicines in lower volumes to keep pace with the future technological requirements; in effect four manufacturing sites – Ireland, Spain, Italy and the US – are being closed. Management's guidance for 2016 stands at growth of low to mid single-digit for revenue and a slightly better core EPS (taking without forex - devaluations in Argentina as well as in Venezuela - the EPS number as the base). The dividend of CHF8.1 per share represents an increase of 1.3% yoy, lagging behind our estimate of CHF8.6.
17 Feb 16
Strong performance along with key R&D successes
Q3 was another resilient quarter, slightly ahead of our expectations, with strong organic growth softening the impact of negative currency. For both 3m and 9m, sales increased 6% organically to CHF11.9bn and CHF35.5bn, respectively, while negative currency brought down the reported growth to 1% and 2%, respectively. The earnings numbers are not disclosed in quarterly releases. The sales outlook has been upgraded from low-to-mid single-digit to mid single-digit range, while the guidance for core EPS growth stays ahead of sales growth. The positive impact of the dollar strength will continue to be offset by weaker other currencies such as the EUR and JPY, with the net negative forex impact of 4ppts on sales, 6ppts on core operating profit and 9ppts on core EPS for the year.
27 Oct 15
Resilient performance despite currency headwinds and capacity expansion investments
Roche reported a strong Q2 as revenue grew by 6% at CER to CHF23.6bn, while both core operating profit and core EPS (excluding a one-off divestment income in 2014) increased by 7%. Revenue growth was driven by 5% CER growth in Pharma and 7% CER growth in the Diagnostics businesses, partially offset by a 3% negative impact of unfavourable currencies. Guidance for the full year was maintained at low to mid single-digit revenue growth at CER and core EPS ahead of this.
28 Jul 15