Why Is Roche A Market Leader In Oncology Therapies?

Roche: A Market Leader in  Oncology Pharma

• Roche holdings revenues haves grown @ a CAGR of 4% over past five years
• The company is a market leader in Oncology Therapies

What Makes Roche Successful In Oncology?

  1) Higher Research Spending

• Biologics are more difficult to make than small molecule drugs as a biologic typically synthesized through the metabolism of a bio-engineered living organism. Most often, biologics are large molecule proteins and have very complex structures. Moreover, they are generally made in large bioreactors containing the organism and the nutrients it requires to sustain itself and the required metabolic processes
• Given the compelxity of these proceses, biologics require heavy spending on research and development, not only developing the cell lines that will produce the required large molecule therapies, but in designing the reactor processes and the processes required to recover the therapies from the bioreactor at the end of the process

• Roche’s focus on biotechnology accounts for its high R&D expenditure

• Roche’s Debt Equity Ratio is 1.09 which higher than its competitors’ average of 0.5. Roche uses debt to finance research spending and make acquisitions. However, the company has been successful in reducing its debt equity ratio from 2.0 in December 2011 to 1.0 in December 2015

   2) Pure-Play Immuno-Oncology Focus

• Rather than being diversified into multiple therapeutic areas like its competitors, Roche has primarily focused on oncology. Key to this focus was its investment in Gennetech in 1990 and subsequently its purchase of the remaining shares in 2009. (See below.)
• This Pure-Play approach has enabled Roche to build trust and reputation in the market due to which it does not need to push its sales. This has resulted in significant savings in its marketing costs.

    3) Biotech and Oncology Focussed Acquisitions

• Roche Has made several acquisitions in the past, all of which have been focused on either bio molecular research or oncology

     4) Genentech Acquisition

• Genentech is the powerhouse for Roche’s successful oncology portfolio
• Genentech is one of the first companies which pioneered biotechnical research
• Roche got successful drugs like Avastin and Herceptin with the acquisition of Genentech in 2009, each of which generate $6 Bil in yearly sales.
• Genentech success has been phenomenal since its acquisition by Roche. Genentech has got approximately 20 drug approval by the FDA since its acquisition.

     5) No Clear Guidelines For Approval Of Biosimilar By FDA Until 2010

• FDA approved first biosimilar (generic versions of biologic medicines) in March, 2015 while European Medicine Agency (EMA) approved the first biosimilar in 2007.
• This has enabled Roche to enjoy extended market leadership and profits.

Have more questions about Roche? See the links below.

• Roche’s Stock May Have Been Down, But The Company’s Business Has Strong Outlook
• What Drove 15% Growth in Roche’s Earnings Between 2011-2014 Even Though Other Big Pharma Companies Suffered A Decline?
• Why Is Market Assigning Low Earnings Multiple To Roche Despite Its Biotech Focus?
• Can Roche Grow Its Earnings By 15% In The Next 3 Years?
• With Biosimilars Getting Approval In Europe, Does Roche’s 2016 EPS Face A Meaningful Risk?
• How Can Roche Get 25% Boost In Revenues In 5 Years?
• Can Emerging Biosimilar Competition Cause > 10% Downside To Roche’s Valuation?
• Here Is Why We Are Bullish On Roche
• Three Things To Watch Out For Roche This Year

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