The rationale for Roche

These efforts to tackle Covid-19 are testament to Roche’s leadership in the complementary fields of diagnostics and pharmaceuticals. Its bosses say that its in-house expertise in both domains puts it at the forefront of personalised care – working to “fit the right treatment to each patient in the best way possible”.

That said, things haven’t been easy for Roche during the crisis. Like others in the healthcare industry, it has been hit hard by the redirection of medical resources and the consequent fall in the number of normal hospitalisations and out-patient visits. The group’s latest financial results – released on 23 July – show that revenues for the half-year to June edged up by just 1 per cent at constant currencies to CHF29.3bn (£24.9bn). This was 3 per cent below analysts' expectations.

In keeping with the pattern of lockdowns across Europe and the US, the situation worsened from March onwards. Like-for-like revenues climbed by 7 per cent in the first quarter, before falling by 4 per cent in the subsequent three months. Pharma – the group’s principal business, which spans oncology, immunology and infectious diseases among other areas – was affected particularly badly in May, as people missed or delayed their GP appointments. The pharma division was also hit by intensifying competition from so-called ‘biosimilars’ – biological medicines that are very similar to other drugs already licensed for use.

Thus, Roche’s recently launched medicines portfolio – including cancer drug Tecentriq and haemophilia product Hemlibra – achieved revenue growth of more than two-thirds to CHF8.9bn, but its overall pharma sales rose by just 1 per cent to CHF23.2bn. That said, trading started to recover from June onwards.

Meanwhile, on the diagnostics front, routine testing took a significant knock amid confinement measures. But, again, the group observed a recovery as lockdown restrictions were eased. Moreover, Roche’s Covid-19 kits helped to offset decline elsewhere – meaning that total diagnostics revenues rose by 3 per cent to CHF6.1bn. Looking ahead, the group is expanding its manufacturing capacity for coronavirus tests, with plans to launch new iterations of these during the third quarter – that should prop up sales for the second half.

It follows that, overall, Roche expects to report low to mid single-digit revenue growth for 2020 – with earnings per share rising at least at that pace (see table). While the risk of further pandemic-driven disruption remains real, it helps that the group has a strong financial track record – bolstered by diversified operations and multiple blockbuster drugs.

In 2019 alone, Roche reported revenue growth of 9 per cent at constant currencies to CHF61.5bn. Underlying operating profits rose by just over a tenth to CHF22.5bn, on a margin of 36.9 per cent – up slightly from 36 per cent a year earlier. Those improvements were underpinned by a sales increase of 11 per cent to CHF48.5bn within the pharma segment – driven by the aforementioned portfolio of newly introduced therapies. Among these, Tecentriq – which was only approved in 2016 – achieved revenue growth of 143 per cent to CHF1.9bn. Sales for Hemlibra, approved in 2017, climbed by more than 500 per cent to CHF1.4bn. Another therapy, Ocrevus – used to treat multiple sclerosis – saw growth of 57 per cent to CHF3.7bn.

Further drug approvals should materialise over time. Roche spent 11 per cent of revenues on research and development (R&D) last year, and it is currently conducting late-stage (phase three) drug trials for more than 30 disease indications.