Roche Earnings: Q3 Sales Growth Fits Our Full-Year Forecast, Pipeline Strength in Key Focus Areas

We are maintaining our CHF 379/$55 fair value estimates for Roche’s nonvoting shares following third-quarter sales results that were in line with our expectations. Roche reported 6% revenue growth (9% at constant currencies,) as foreign exchange headwinds continued to weigh on results. With growth headwinds from prior covid-19 diagnostic sales largely in the past (with the exception of a CHF 300 million rapid antigen test order in the fourth quarter of 2023 that will make comparisons more difficult in the fourth quarter) and limited biosimilar competition (Actemra biosimilars launching in the fourth quarter and Xolair biosimilars launching beyond 2025 will be focused on drugs only representing 8% of our 2024 revenue forecast), we think wide-moat Roche is in a good position to see 5% annualized growth through 2030. The firm’s biggest growth driver, ophthalmology drug Vabysmo, grew at 56% in the quarter, despite already breaking through CHF 1 billion in quarterly sales. We’re bullish about what we see as lower-risk opportunities for extending sales growth in multiple sclerosis (subcutaneous Ocrevus expands reach to patients who did not have access to infusions) and hemophilia (NXT007 could further improve on Hemlibra’s profile, with phase 2 data expected in 2025). We see progress in breast cancer, with the approval of Itovebi (inavolisib), upcoming data in 2025 for giredestrant, and the newly licensed phase 1 CDK drug RGT-419B. Among higher-risk programs, we think oral multiple sclerosis drug fenebrutinib (phase 3 data in 2025), COPD drug astegolimab (phase 3 data in 2025), and Alzheimer’s drug trontinemab (decision on phase 3 start coming in early 2025) all have the potential to bring more investor focus to Roche. However, we’re more bearish on pipeline updates coming later this year like lung cancer survival data for tiragolumab and motor deterioration data for Parkinson’s therapy prasinezumab; we see more potential for shares after the tiragolumab overhang ends.