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Morningstar | RHHBY Updated Forecasts and Estimates from 07 Jun 2019

We think Roche's drug portfolio and industry-leading diagnostics conspire to create sustainable competitive advantages. As the market leader in both biotech and diagnostics, this Swiss healthcare giant is in a unique position to guide global health care into a safer, more personalized, and more cost-effective endeavor. Strong information sharing continues between Genentech and Roche researchers, boosting research and development productivity and personalized medicine offerings that take advantage of Roche's diagnostic arm. Roche's biologics focus and innovative pipeline are key to the firm's ability to maintain its wide moat and continue to achieve growth as current blockbusters mature. More than 80% of Roche's top pharmaceutical sales are from biologics, which provides a buffer against traditional generic competition. Roche's pharmaceutical division, blockbuster cancer biologics Avastin, Rituxan, and Herceptin accounted for 36% of Roche's revenue in 2018, but all three are under threat from biosimilars in the U.S. and Europe (although growth in China remains strong). However, with the launch of Perjeta in 2012 and Kadcyla in 2013, Roche is in a strong position to continue expanding its breast cancer franchise beyond Herceptin, regardless of biosimilars. Gazyva, now approved in CLL and NHL, will also extend the longevity of the Rituxan franchise. Avastin's lung cancer sales are vulnerable to competition from new therapies Opdivo and Keytruda, but Roche's own immuno-oncology drug Tecentriq launched in 2016. Roche is also expanding outside of oncology with MS drug Ocrevus ($7 billion peak sales) and hemophilia drug Hemlibra ($6 billion peak sales) launching strongly.Roche's diagnostics business is also strong. With a 20% share of the global in vitro diagnostics market, Roche holds the number-one rank in this industry over competitors Siemens, Abbott, and Ortho. Pricing pressure has been intense in the diabetes-care market, but new instruments and immunoassays have buoyed the core professional diagnostics segment.