Roche Seeing Core Demand Recovering, With Controversial Upside In Alzheimer's On The Table

 

The last few months have been interesting for Roche (RHHBY) and the pharmaceutical space in general. While the COVID-19 pandemic isn’t gone, the impact on pharmaceutical businesses is lessening, and second half results should reflect more of that return to normalcy. The bigger item, though, has been the highly controversial approval of Biogen’s (BIIB) Aduhelm (aducanumab) for Alzheimer’s and the prospect that antibodies that looked marginal at best, including Roche’s gantenerumab could have a renewed opportunity courtesy of a change in standards and practices at the FDA.

While I don’t agree with the FDA’s decision in re Aduhelm, the situation is what it is and Roche will have an opportunity to enter the market if and when the Phase III program (GRADUATE) for gantenerumab (scheduled to read out in the second half of 2022) shows adequate efficacy and safety. In the meantime, Roche has other drivers like the ongoing growth of Ocrevus, Hemlibra, Tecentriq, and Evrysdi and important clinical read-outs for Polivy, giredestrant (an oral SERD drug), tiragolumab (anti-TIGIT), and Tecentriq in adjuvant settings.

As there’s now a credible path forward for Roche in Alzheimer’s, and the company’s core markets are recovering, my revenue and FCF estimates head higher, as does my fair value. Up about 20% since my last update, modestly better than the sector, I still see Roche priced for high single-digit annualized returns, which I think argues for nothing worse than holding the shares.

 

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Roche Seeing Core Demand Recovering, With Controversial Upside In Alzheimer's On The Table