Roche Delivers Some Clinical Wins, But Skepticism Remains Largely Intact

Even though Swiss drug giant Roche (OTCQX:RHHBY) has managed to deliver a series of largely better-than-expected clinical trial results, you wouldn’t really know it from the share price. Despite a lot of skepticism going into the IMPower 150 read-out for Tecentriq in first-line lung cancer, Roche’s successful result seems to not to have done much to resolve questions and concerns about how it will stack up with rivals like Merck’s (MRK) Keytruda. So too with the very positive results from the HAVEN 3 study of Hemlibra.

As IMPower 150 was only the first, and arguably the riskiest, of five front-line Tecentriq trials in lung cancer, I think Roche is in a good position going into further read-outs in 2018. Likewise, I believe Roche has a long-term winner with Hemlibra even as gene therapy approaches look to gain meaningful share in the hemophilia space. At a minimum, then, I would argue that Roche has established three strong new drug platforms (Tecentriq, Hemlibra, Ocrevus) with blockbuster potential on top of a very robust R&D pipeline.

I believe Roche is undervalued up into the mid-$30s. Competition from biosimilars is going to do its damage to near-term reported financial results, but the market has known about this for some time. With Roche having, at least in my opinion, reestablished credibility that it can develop meaningful new therapeutics, I believe the shares are undervalued today on the basis of both its existing business and the potential pipeline contributions over the next decade.

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Roche Delivers Some Clinical Wins, But Skepticism Remains Largely Intact