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Bull of the Day: Roche (RHHBY)

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Roche Holding (RHHBY - Free Report) , the $200 billion Swiss pharma giant, became a Zacks #1 Rank recently after analysts raised EPS estimates to 15% growth following the company's July first-half 2018 report.
 
Roche delivered first-half sales of CHF 28.11 billion, representing 7% growth in constant-currency (the USD/CHF exchange rate is currently close to par). Projected full-year 2018 sales of USD 57.63 billion represents 16.2% growth.
 
The Pharma segment raked in CHF 21.85 billion, while Diagnostics contributed CHF 6.26B. 
 
While US analyst coverage is sparse for Roche, and the half-year reporting periods probably don't make it any easier, I wanted to write about Roche for 3 reasons...
 
1. The company has 3 of the top-ten selling pharmaceuticals in the world, all cancer drugs. 
 
2. This week, the Nobel prize in medicine was awarded to scientists who made key discoveries about how cancer tricks our immune systems and how researchers could fight back. Immuno-therapy, as the emerging field is called, is an area that Roche is aggressively moving into as their top legacy drugs see sales growth declines due to biosimilar competition.
 
3. Roche made two unique acquisitions this year that caught my eye and show their commitment to advance genomic R&D.
 
Let's cover each area in more detail...
 
1) Top Cancer Drugs
 
Rituxan is the world's fifth-largest-selling pharmaceutical product at approx. $7.1 billion/year. It belongs to a class of drugs called monoclonal antibodies and is used primarily to treat non-Hodgkin's lymphoma (NHL) as a single-agent therapy in patients whose disease recurred or did not respond to initial treatment. It is also used to treat leukemia and other auto-immune diseases.
 
Avastin is #7 in the world with first-half sales of CHF 3.42 billion (just under USD $7B annually). It is used for metastatic cancers, or those that have spread in the body from an original diagnosed site. Avastin was also recently approved by the FDA to treat a form of ovarian cancer.
 
Herceptin is #8 globally and is used to treat breast cancer. This was the only one of the 3 top drugs to see growth in the first half. Avastin and Herceptin have both grown dramatically in the past 4 year to nearly equal sales of Rituxan, but all 3 face biosimilar and generic threats.
 
And that is why large pharma companies like Roche keep their R&D labs active and their drug pipelines full. Here were sales from other key products that pushed Pharma Division sales over CHF 21B...
 
  • Perjeta: CHF 1.31B a monoclonal antibody used in combination therapies for the treatment of metastatic HER2-positive breast cancer
  • Lucentis: CHF 818M
  • Esbriet: CHF 472M
  • Gazyva: CHF 177M 
  • Actemra: CHF 1.05B a rheumatoid arthritis treatment
  • Tecentriq: CHF 320M
  • Ocrevus: CHF 1.04B 
  • Hemlibra: CHF 57M
 
Out of the key products, MS drug Ocrevus beat consensus by 5%, with Tecentriq, Lucentis and Herceptin also beating by 6%, 12% and 4%, respectively.  
 
2) Immunotherapy Revolution
 
Just this past Monday morning we learned that the Nobel prize for medicine has been awarded to two scientists who helped create the field of "immuno-oncology," often abbreviated I/O, a cancer therapy that teaches the body's immune system to fight its own cancer.
 
Research by Professor James P. Allison of the University of Texas and Professor Tasuku Honjo from Japan's Kyoto University led to treatments for melanoma, the deadly skin cancer.
 
The nefarious thing about cancer is that it normally can hide from your body's immune system. Immune "checkpoint" therapy has the ability to switch on or off proteins involved in recognizing cancer and then allowing white blood T-cells to do their job. It "has revolutionised cancer treatment," said the Nobel Academy.
 
Michelle Roberts, writing for the BBC News on October 1, described the problem and its solution in perfectly plain English... 
 
Our immune system protects us from disease, but it has built-in safeguards to stop it from attacking our own tissue. Some cancers can take advantage of those "brakes" and dodge the attack too.
 
Allison and Honjo, now both in their 70s, discovered a way to unleash our immune cells to attack tumours by turning off proteins that put the brakes on.
 
Allison won for discovering that a molecule on the surface of the immune system’s T cells, called CTLA-4, acts as a “checkpoint inhibitor” (a term he coined), a biological brake on the T cells, and that jamming the brake (including with an antibody that he developed) can unleash those T cells to fight cancer. Honjo discovered another such checkpoint, called PD-1, that also keeps T cells from attacking cancer cells.
 
(end of excerpt from BBC article by Michelle Roberts)
 
Immuno-oncology is a key focus area for Roche, with the company currently having multiple candidates under development. The FDA granted accelerated approval to immuno-oncology drug Tecentriq in May 2016 for the treatment of patients suffering from locally advanced or metastatic urothelial carcinoma (mUC). Initial uptake of the drug by physicians has been encouraging. 
 
In Oct 2016, Tecentriq became the first and only anti-PDL1 cancer immunotherapy to be approved by the FDA for the treatment of metastatic non-small cell lung cancer (NSCLC). The drug has also been approved in Europe and label expansion should boost the drug’s sales further. The FDA recently granted accelerated approval to Tecentriq for the treatment of patients suffering from locally advanced or metastatic UC who are not eligible for cisplatin chemotherapy. 
 
And in late September, Roche released results of their IMpower132 study showing that the combination of Tecentriq plus chemo and Alimta improved PFS (progression-free survival) in 1L non-squamous NSCLC. A strong benefit in PD-L1 <1% patients was observed which could potentially lead to some use of the Tecentriq combination in this subgroup. Final OS (overall survival) data is expected next year, but it appears unlikely that it will be as strong as the benchmark set by Merck's (MRK - Free Report) Keytruda chemo combination.
 
However Roche matches up to Merck in this round, the floodgates of immuno-oncology research have been opened in this decade, as well as in areas like gene and cell therapy. We can assume that Roche will keep working to on the next breakthrough formulation.
 
To learn about more companies on these bleeding edges of science and medicine, see my October 1 special report for Zacks Confidential...
 
 
3) Diagnostics in the Genomic Revolution
 
As mentioned, Roche Diagnostics Division sales grow 6%, primarily due to demand for immunodiagnostic solutions.
 
Apart from providing therapeutic products and services for diverse medical needs, Roche also focuses on innovative diagnostic solutions for the early detection and treatment of diseases. Immunodiagnostics is the key focus area for this segment. Roche entered into a strategic, long-term partnership with GE (GE - Free Report) Healthcare to jointly develop and co-market digital clinical decision support solutions.
 
During the first quarter of 2018, Roche acquired Flatiron Health, a startup incubated at Google Ventures (GV), and Ignyta. Flatiron Health, a software company that organizes the world's oncology information and makes it accessible for doctors, patients, and researchers, will enable Roche to accelerate development and delivery of breakthrough medicines for oncology patients.
 
Ignyta’s lead molecule entrectinib targets tumors with one of two genetically defined gene rearrangements: ROS1 fusions in NSCLC, and NTRK fusions across a broad range of solid tumors. The candidate is currently being evaluated in an ongoing phase II trial which if successful will support NDA (New Drug Application) submission. 
 
Roche also scooped up another GV offspring in Foundation Medicine (FMI), a platform for large-scale testing of DNA mutations. The transaction will close in the second half of 2018. The acquisition will advance molecular insights and the broad availability of high-quality comprehensive genomic profiling, both key enablers for the development of new cancer treatments and optimal patient care.
 
Roche may be a solid candidate for portfolios that need more exposure to big pharma. In my Healthcare Innovators portfolio, in addition to many Biotech stocks, I currently hold Johnson & Johnson (JNJ - Free Report) and Merck (MRK - Free Report) , and recently sold Eli Lilly (LLY - Free Report) , AbbVie (ABBV) and Novartis (NVS). 
 
Be sure to check out my special report on Biotech linked above to stay on top of the latest innovators.
 
5 Companies Verge on Apple-Like Run
 
Did you miss Apple's 9X stock explosion after they launched their iPhone in 2007? Now 2018 looks to be a pivotal year to get in on another emerging technology expected to rock the market. Demand could soar from almost nothing to $42 billion by 2025. Reports suggest it could save 10 million lives per decade which could in turn save $200 billion in U.S. healthcare costs. A bonus Zacks Special Report names this breakthrough and the 5 best stocks to exploit it. Like Apple in 2007, these companies are already strong and coiling for potential mega-gains.
 


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