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Roche's (RHHBY) 2022 Core Earnings Grow, 2023 Outlook Dismal

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Roche Holding AG’s (RHHBY - Free Report) performance in 2022 was pretty average, as the demand for COVID-19 products declined significantly even though the diagnostics base business and newer drugs maintained their growth.

Roche’s stock has lost 18.7% in the past year against the industry’s growth of 9.3%.

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The company reported total sales of CHF 16.2 billion in the fourth quarter of 2022, up 4% year over year.

Sales in 2022 came in at CHF 63.3 billion, up 1% from a year ago. Core earnings per share totaled CHF 20.3 for the year, up from CHF 19.81 in 2021.

The company reports results under two divisions — Pharmaceuticals and Diagnostics. All growth rates mentioned below are on a year-over-year basis and at constant exchange rates.

Sales in the Pharmaceuticals Division were up only 2% in 2022 at CHF 45.5 billion as lower sales of Actemra/RoActemra (severe COVID-19) dragged sales.

The Diagnostics division’s sales were up 3%, driven by ongoing strong momentum in the base business, which more than offset the continuing decline in the demand for COVID-19 tests in the second half of the year.

2022 in Detail

Sales of Ocrevus, used to treat two types of multiple sclerosis, increased 17% to CHF 6 billion as demand in both indications (relapsing and primary progressive forms of multiple sclerosis) remained strong.

Perjeta’s sales grew 5% to CHF 4.1 billion due to continued high demand in the international region, mainly in China.

Sales of Hemlibra surged 27% to CHF 3.8 billion, fueled by strong uptake in the United States, the international region and Europe.

Immuno-oncology drug, Tecentriq (for advanced lung cancer, urothelial cancer and breast cancer), recorded 14% year-over-year sales growth to CHF 3.7 billion as sales increased due to high demand in the United States and Europe.

Actemra/RoActemra recorded sales of CHF 2.7 billion, down 22% as sales decreased, mainly in the United States and international region, driven by lower demand for patients with severe COVID-19 pneumonia.

Asthma drug Xolair raked in sales of CHF 2.2 billion, up 9%, as sales grew in the chronic spontaneous urticaria indication.

Herceptin sales were down 19% to CHF 2.1 billion due to biosimilar uptake in various countries.

Sales of Avastin, approved for multiple oncology indications, were down 28% to CHF 2.1 billion due to biosimilar competition in the United States and Europe.

Kadcyla sales were up 7% to CHF 2.1 billion, driven by the usage of Kadcyla in the early breast cancer setting.

Sales of Rituxan/MabThera (for blood cancer and rheumatoid arthritis) declined 20% to CHF 2.1 billion due to biosimilar erosion, primarily in the United States.

Ronapreve, the antibody cocktail of casirivimab and imdevimab, for the treatment of recently diagnosed high-risk patients with mild to moderate COVID-19, generated sales of CHF 1.7 billion, up 17% as sales increased due to supplies of Ronapreve to the Japanese government. Roche and partner Regeneron (REGN - Free Report) collaborated for the development and manufacture of the cocktail.

Roche is responsible for distribution in Europe and other countries outside the United States. Regeneron is responsible for the United States.

Sales of the lung cancer drug, Alecensa, were up 15% to CHF 1.5 billion on solid growth across all regions.

The recently approved spinal muscular atrophy drug, Evrysdi, generated sales of CHF 1.1 billion on the back of strong uptake across all regions, driven by Europe and the international region.

Sales of the ophthalmology drug Lucentis declined 28% to CHF 1 billion, primarily due to competitive pressure. Lucentis started facing biosimilars as soon as the first version (with a restricted label) came to market in the United States at the beginning of the third quarter of 2022.

Phesgo, a fixed-dose combination of Perjeta and Herceptin for subcutaneous injection, sales came in at CHF 740 million, up 121%, as sales continued to show a strong uptake, especially in Europe and the United States.

Gazyva/Gazyvaro sales came in at CHF 730 million, up 9%.

Esbriet, indicated for idiopathic pulmonary fibrosis, declined 31% to CHF 718 million due to generic uptake, mainly in the United States. The first generic versions were launched in May 2022.

Ophthalmology drug Vabysmo (approved in 2022) sales came in at CHF 591 million, as sales of this new eye medicine showed an excellent uptake.

Revenues in the Diagnostics division increased by 3%. The Point of Care businesses recorded strong growth (+17%).

2023 Guidance

Roche expects a decrease in total sales in the low single digit range (at constant exchange rates) due to the sharp decline in sales of COVID-19 products of roughly CHF 5 billion. Excluding this impact, sales growth is anticipated to be solid in both divisions. Core earnings per share are targeted to develop broadly in line with sales decline.

Pipeline Updates

In November, Roche announced results from the GRADUATE I and II studies evaluating gantenerumab in people with early Alzheimer’s disease. The studies did not meet their primary endpoint of slowing clinical decline.

Our Take

Roche’s performance in 2022 was ordinary and significantly lower COVID-19-related sales impacted the top line even though new drugs, namely Ocrevus, Hemlibra, Evrysdi and Tecentriq recorded growth and the uptake of the new eye drug Vabysmo (launched at the beginning of 2022) was outstanding.

2023 is also expected to be challenging for the company due to the expected sharp decline in sales of COVID-19 products of roughly CHF 5 billion.

Competition from biosimilars for established cancer medicines like Avastin, MabThera/Rituxan and Herceptin hurt sales, as expected. Pipeline setbacks were also disappointing.

Roche currently carries a Zacks Rank #2 (Buy). Some other top-ranked stocks in the healthcare sector are Novo Nordisk (NVO - Free Report) and Sanofi (SNY - Free Report) ,) both carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Over the past 30 days, earnings estimates for NVO for 2023 have gained 15 cents to $4.18. NVO topped earnings estimates in three of the last four quarters and has a four-quarter earnings surprise of 3.09%, on average.

Over the past 60 days, earnings estimates for Sanofi have increased to $4.25 from $4.41 for 2023. SNY also surpassed estimates in two of the trailing four quarters, with the average surprise being 9.50.


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