VALUATION HIGHLIGHTS
- Oncology Drugs constitute 44% of the Trefis price estimate for Roche Holdings's stock.
- Neuroscience Drugs constitute 16% of the Trefis price estimate for Roche Holdings's stock.
- In Vitro Diagnostics constitute 13% of the Trefis price estimate for Roche Holdings's stock.
WHAT HAS CHANGED?
- Roche's ADR Performance In Recent Years
- Notably, RHHBY stock has underperformed the broader market in each of the last four years. Returns for the stock were 21% in 2021, -22% in 2022, -4% in 2023, and 0% in 2024.
- In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, 24% in 2023, and 23% in 2024 — indicating that RHHBY underperformed the S&P in 2021, 2022, 2023 and 2024.
- Roche's 2024 Results
- In 2024, Roche achieved sales of CHF 60.5 billion, a 3% increase compared to the previous year. This growth was significantly boosted by a 64% jump in sales of Vabysmo, reaching $3.9 billion, which helped to counteract the decreasing revenue from its older, established medications. Roche also reported an increase in core earnings per share, from CHF 18.57 in 2023 to CHF 18.80 in 2024.
- Loss of Patent Exclusivity
- In recent years, Roche has seen patent protection expire for several of its major drugs, including Rituxan, Avastin, and Herceptin. These once-blockbuster medications, each generating around $6 billion in sales in 2018, have experienced a significant decline in combined sales, falling from $19.4 billion in 2018 to $4.5 billion in 2024 due to the entry of generic and biosimilar competition. This downward trend is expected to persist in the short term.
- New Drugs So Far Offsetting The Decline In The Sales of Older Drugs
- As previously noted, Roche is contending with biosimilar competition for some of its key blockbuster medications. However, the company anticipates that its newer portfolio of drugs, including Vabysmo, Ocrevus, Hemlibra, Perjeta, and Kadcyla, will generate sufficient growth to compensate for the revenue reduction from these older products.
- Ocrevus Driving The Growth
- Ocrevus, a treatment for both relapsing and primary progressive forms of multiple sclerosis, has demonstrated remarkable growth recently. Its revenues have surged ninefold, from approximately $856 million in 2017 to $7.7 billion in 2024. We anticipate Ocrevus will remain a major force in the multiple sclerosis treatment landscape and has the potential to reach peak sales of around $9 billion.
- Late-Stage Pipeline
- Roche maintains a robust pipeline, reflecting its ongoing investment in the expanding fields of oncology and hematology. Examining its Phase 3 clinical trials reveals a significant emphasis on Giredestrant and Tiragolumab within its oncology program. Following a period of rapid expansion in recent years, Roche's pharmaceutical business could encounter slower growth. Consequently, the company is counting on these late-stage pipeline candidates to be key drivers of future growth.
POTENTIAL UPSIDE & DOWNSIDE TO TREFIS PRICE
Below are some key drivers of Roche's value that present opportunities for upside or downside to the current Trefis price estimate:
Roche's Oncology Sales Growth
- Oncology Drugs Revenues:
We forecast Roche's oncology sales to rise from $28 billion in 2024 to over $40 billion by the end of our review period in 201. We anticipate this growth to come from the company's relatively new drugs, such as Gazyva / Gazyvaro, Alecensa,
Atezolizumab/Tecentriq, Phesgo, Polivy, and Hemlibra.
Should Roche's anticipated strong sales growth from its pipeline drugs not materialize, and revenue remains below the $28 billion threshold, our price estimate for the company could see a 10% reduction.
Conversely, if these drugs outperform expectations, gaining significant market share and propelling segment sales to over $50 billion by the end of our review period, this could lead to a 10% increase in our Roche price estimate.
BUSINESS SUMMARY
Founded in 1896 and headquartered in Basel, Roche is a global healthcare company operating through two primary divisions: Pharmaceuticals and Diagnostics. Its pharmaceutical arm develops drugs across a range of therapeutic areas, with a strong focus on Oncology (cancer treatments), as well as Autoimmune, Virology, Respiratory, Metabolism, Renal Anemia, and Ophthalmology.
Roche is also a market leader in in-vitro diagnostics, which it organizes into four business areas: Centralized And Point of Care Solutions, Tissue Diagnostics, Molecular Diagnostics, and Diabetes Care. Its top-selling diagnostic products include CoaguChek, Accu-Chek, Immunoassays, blood glucose monitoring systems, advanced tissue staining technologies, and tests for HIV and Hepatitis B & C. To further strengthen its diagnostics division, Roche plans to acquire companies specializing in genetic sequencing. The company operates globally through subsidiaries such as Genentech and Ventana in the U.S., and Chugai Pharmaceuticals in Japan.
SOURCES OF VALUE
Roche manufactures several blockbuster drugs, including Ocrevus, Hemlibra, Vabysmo, and Tecentriq. Its oncology segment is a valued business, accounting for 45% of the company's total value.
Oncology to lead the growth
Roche's commitment to personalized healthcare and its strong emphasis on cancer treatment have solidified its position as a major player in the oncology sector. Backed by dedicated research and development efforts and a robust pipeline of novel therapies complementing its existing successful products, Roche is well-positioned to maintain its market leadership. Many of its pipeline drugs hold significant commercial promise and are expected to contribute substantially to this goal.
KEY TRENDS
Rapidly growing emerging markets
The rapid growth of per capita income in numerous emerging economies presents a substantial opportunity for market expansion. Furthermore, increasing health awareness in these regions, driven by new research and greater access to information, also fuels growth potential. However, the presence of less robust patent laws in many of these markets could ultimately restrict Roche's ability to fully capitalize on these opportunities.
Growing threat of generic products and biosimilars
The rapidly expanding pharmaceutical markets in emerging economies, often called 'Pharmerging' markets, possess the capacity and technological expertise to produce generic versions of blockbuster drugs. These generics are frequently sold at significantly lower prices than their branded equivalents, which can severely impact the long-term profitability of major pharmaceutical companies. In the future, Roche's drugs could face a similar challenge from biosimilars, which are essentially generic versions of biologic medications.
In the past, biologic drugs enjoyed strong protection, largely because clear regulatory pathways for their alternatives were absent. Biosimilars are similar to generic drugs in that they are approved substitutes for specific biologic therapies. However, while generic drugs are precise chemical replicas of the small molecule drugs they replace, biosimilars contain only the therapeutically active component of complex biologic molecules. Produced through biological processes in specialized bioreactors, biosimilars are more challenging to manufacture and demand greater technical proficiency. Nevertheless, recent developments in the industry suggest a growing likelihood of more biosimilar approvals in the future.
Global healthcare reforms
Globally, governments are enacting substantial healthcare reforms, some of which may introduce measures like rebates and other mechanisms to effectively control or cap the pricing of medications.
