Analyst Note| Karen Andersen, CFA |
Roche's first quarter reflected continued steeper-than-expected biosimilar headwinds, but stronger-than-expected diagnostics performance as the return of routine testing and continued COVID-19 testing demand combined to benefit growth. While we're adjusting our pharmaceutical division projections down, and our diagnostics division projections up, this had no significant impact on our fair value estimate, and we've only slightly adjusted our valuation to CHF 438/$59. Management maintained its low- to mid-single-digit top- and bottom-line growth guidance for the year, fitting with our roughly 4%-5% projected growth. Overall, we think Roche's newer pharma drugs will begin to drive growth in this division once the worst of the biosimilar headwind passes in the second half of 2021, and that diagnostics is poised for strong performance over the next couple of quarters to counter the biosimilar headwind. We continue to view the firm's combination of innovative medicines and diagnostics as supporting a wide moat.