EUR 4351.14 For Business Accounts Only

APHINITY Data Disappointing

We attended the long-awaited APHINITY data public-ation at ASCO yesterday. We view the data as disappointing and have cut our Perjeta sales in the adjuvant setting by CHF2.5bn. As a result we now forecast mid-single digit EPS growth 2017-19, but very little EPS growth from 2020-22 as the US biosimilar impact kicks in. This slower growth and the need for the market to absorb what the outlook for Roche will be, leads us to downgrade to HOLD.

Clinical Data Surprisingly Poor – The IDFS (Invasive Disease Free Survival) rate was 94.1% on the Perjeta + Herceptin arm compared to 93.2% for Herceptin alone (P-value = 0.045). Whilst the overall hazard ratio was 0.81, the absolute benefit was modest. Even in the sub-set of node positive patients where we expected a much better response, there was only a 1.8% benefit (p-value=0.019). Part of the reason for the limited benefit of Perjeta was the better than expected performance of Herceptin.

Perjeta Peak Sales Cut from CHF7bn to CHF4bn – This poor data will likely make adjuvant reimbursement in Europe difficult and limit usage to the US where insurers will have to reimburse it if the FDA approves it. Given the reaction to the presentation at ASCO & minimal benefit we now forecast Perjeta adjuvant sales will total CHF1.5bn.

Material Forecast Changes – We have cut our peak Perjeta sales by CHF2.5bn, to CHF4bn. We now include CHF500m of cost savings 2018-20 as Roche reduce some of the HER2 franchise commercial infrastructure. As a result we have cut our sales forecasts by 3-6% and EPS by 5-8%, 2019-22.

Downgrade to HOLD – With limited EPS growth (2% CAGR 2017-22) and near-term uncertainty around the impact of APHINITY, we now struggle to argue for a sector premium. We assume a multiple in line with the sector for 2018, giving us a CHF265 valuation and we downgrade our recommendation to HOLD.