Roche: New drugs will overtake competition from biosimilars

Solskin

This morning, one of our pharmaceutical hedging stocks was highlighted by Quant Ratings as being at risk of a potential dividend cut. With this analysis, we dig deeper into Roche Holding AG (OTCQX:RHHBY) (OTCQX:RHHBF) and commenting on the latest company developments thanks to its Pharma Day recently held in London.

SA Warning

SA Warning

Source: Page Seeking Alpha – Roche Holding AG

Roche is at serious risk of reducing its dividend

Roche is at serious risk of reducing its dividend

Source: Alpha Research – Disclaimer

First, Roche has one of the most knowledgeable and knowledgeable research and development engines in the world. In the past, despite new drug developments, the company has been challenged by the investment community for eroding margins and a weaker growth trajectory.

What is the market still missing?

Thanks to the latest presentation with a consensus survey, we can clearly see the missing puzzle of Wall Street’s expectations through 2025.

7.5 billion gap in Roche Survey

7.5 billion gap in Roche Survey

Source: Roche Investor Day

Additionally, as already explained in our coverage primer, the company is rejuvenating its product mix by offsetting and outpacing biosimilar competition and margin erosion.

Roche business development

Roche business development

Source: JPM Health Conference

With industry-leading profitability, Roche is able to allocate more and more profits to the development of new drugs, increasing year on year the allocation of opex in its internal R&D department to support the medium/long term revenue growth. Comparing our numbers to consensus expectations, here at the Lab, we are confident that the Swiss pharma giant has sales growth potential of over 5% CAGR through 2026. We recognized that Wall Street needed to look through the downturn of COVID revenue expected in 2023. For the record, during the pandemic outbreak, Roche was a key beneficiary thanks to sales from its diagnostics division; and while we estimate a lower COVID-19 revenue contribution in 2023, we still believe that many governments have understood the importance of investing more capital in Roche’s diagnostic machine products.

Roche R&D costs

Roche R&D costs

Source: Roche Investor Day

Conclusion and evaluation

During the Investor Day, Roche reaffirmed its guidance for 2022 with a positive outlook for the years to come.

Is Roche’s dividend in danger? We think not. Based on our estimates, we expect DPS to increase in line with BPA guidance, set at low/mid single digits. As a reminder, the Swiss pharmaceutical giant has already increased the DPS this year. rock is one of the few dividend aristocratic European companieshaving increased the dividend for the 35th consecutive time.

After recently analyzing second quarter results, even though the entire sector was downgraded due to an economic slowdown, on a P/E basis, Roche is still trading at a higher valuation compared to its higher peers. relatives. Thus, we reaffirm our neutral rating with a target price of CHF 350 per share.

Here at the Lab, we cover the pharmaceutical sector extensively:

  1. Novartis (NVS): comments on the second quarter results
  2. Lonza (OTCPK:LZAGY): growth is undervalued
  3. AstraZeneca (AZN): Our next pick for growth
  4. Grifols (GRFS): long only
  5. Sanofi (SNY) creates value and growth

Martin E. Berry