Upgrade to Buy - Slow EU Biosimilars Offer Upside
We upgrade Roche to BUY based on a de-risked pipeline and upside risk from slower than anticipated EU biosimilar erosion, following interviews with key members of the UK Cancer Vanguard. We show that the new drugs more than offset biosimilars from a sales and contribution perspective. We calculate EPS sensitivities from various biosimilar uptake scenarios and show the scope for material margin expansion. Lampalizumab also offers near-term upside potential.What’s Changed – 1) Our work on EU Biosimilars suggests a slow impact for Herceptin & Rituxan 2) APHINITY success offsets contribution lost due to EU Biosimilars 3) Consensus EPS has fallen since last year despite APHINITY success
EU Biosimilar Impact to be Slow – The UK Cancer Vanguard (a group of Oncology KOL’s) are setting the guidance for biosimilar adoption in the UK and some of Europe. They highlighted the uptake could be slow due to a conservative approach being taken by the oncology community.
Margin Expansion Upside - Our unique Contribution Analysis highlights the margin expansion potential given significant investments in S&M and COGS. Despite biosimilars, this latency will drive material operational leverage in our view.
Roche Holding is a healthcare company. Co. operates in two Divisions, Pharmaceuticals and Diagnostics. Co.'s pharmaceuticals division is comprised of two business segments Roche Pharmaceuticals and Chugai. Co.'s pharmaceuticals division provides therapies including Cotellic, in combination with Zelboraf for advanced melanoma, and Alecensa for a specific type of lung cancer. Co.'s diagnostics division consists of four business areas: Diabetes Care, Molecular Diagnostics, Professional Diagnostics and Tissue Diagnostics. Co.'s diagnostics division provides in vitro diagnostic tests, used by healthcare providers to screen, diagnose and monitor therapies.
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