Roche – FY2019 Results

Roche’s reported results for FY2019 showed revenue growth of 9%, core EPS growth of 13%, and free cash flow generation of CHF16.8bn.

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Actemra, a drug initially developed to treat rheumatoid arthritis, has received regulatory approval for a late stage clinical trial to treat patients infected with Covid-19.

Overview of results

 

Roche, the largest biotech company in the world, reported FY2019 group sales of CHF61.5bn (+9%). Pharmaceuticals sales grew by 11% to CHF48.5bn driven by new products Ocrevus (+57%), Hemilbra (>500%), Tecentriq (+143%) and Perjeta (+29%), which offset the negative impact of biosimilars on legacy portfolio products, Herceptin (-12%) and Mabthera (-4%) - the amount of which is estimated to be CHF1.5bn. International sales grew 15% driven by increased demand in China. Diagnostic sales totalled CHF13.0bn (+3%) but were negatively impacted by a destocking of inventories in China.

 

 

Recorded operating profit for the year was CHF11.7bn (+21%), but this included the impact of lower goodwill impairments in FY2019 compared to FY2018. Normalising for such non-core items shows a core operating profit increase of 11%. Core EPS increased by 13% as a long-standing tax dispute was resolved which ultimately led to the effective group tax rate decreasing from 19.7% to 16.3%. Normalising for the effect of the tax disputes shows a core group tax rate of 18.4%. Free cash flow increased to CHF16.8bn (+12%) and dividends increased by 3% (33rd consecutive dividend increase). Roche redeemed roughly CHF5.0bn of bonds and notes during the year which saw gross debt decrease to CHF14.4bn and net debt now stands at CHF2.5bn.

 

Outlook

Roche continues to maintain an extensive list of products in the pipeline. Its oncology pipeline has a record 45 Phase III trials taking place and there are five new molecular entities in development. Within ophthalmology, Roche has developed a refillable intraocular implant that will reduce the number of injections a person needs to have in the eye over the next ten to twenty years.

 

During 4Q2019, roughly 35% of sales came from new products, by 2Q2020 this figure is expected to reach 40%, helped by global rollouts of Hemlibra, Ocrevus and Tecentriq. It is expected that the sales of these new products will offset the erosion to the legacy portfolio from biosimilars which management estimates will be CHF4.0bn for FY2020, specifically due to Avastin competition in Europe. Three new products/molecules are expected to launch in FY2020. The products which are expected to serve as significant catalysts are Risidiplam, Satralizumab and FeDeriCa. Additional catalysts include readouts on Ipatasertib and Etrolizumab.

 

Covid-19 response

 

Roche has received regulatory approval from the Food and Drug Administration in the US to begin a late-stage clinical trial of its rheumatoid arthritis drug Actemra as a potential treatment for pneumonia in patients with Covid-19. In China, it has already been tested on 21 Covid-19 patients, with all responding well although the studies did not have a control group. The Swiss pharmaceutical company said that is systems are also working at maximum production rates on diagnostic tests for the virus. It has shipped the first allotment of its testing systems to a network of hospitals and laboratories across the U.S. to enable automated, high-volume patient testing.

 

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Jonathan Wernick

Equity Analyst, Sasfin Wealth

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