Though we’ve slightly reduced our fair value estimate, we see Roche’s wide economic moat as stable, given the firm’s dominance in branded cancer therapies and in vitro diagnostics globally.
has exited the annual meeting of the American Society of Clinical Oncology with a mix of data, which we think was dominated by disappointing Aphinity data (breast cancer) but also included excellent (albeit expected) Alecensa data in lung cancer and early data as well as hints to a long-term strategy in immuno-oncology. We think the details on Perjeta’s efficacy in adjuvant breast cancer from the Aphinity study have a material impact on the firm's value and are likely to limit Perjeta's uptake. Our model now focuses our Perjeta adjuvant sales forecast on high-risk patients and virtually only in the U.S. market. Our assumption for Roche’s five-year compound annual growth rate on its HER2 franchise therefore flips from 2% (CHF 10.2 billion in 2021) to negative 2% (CHF 8.5 billion), and we’ve lowered our fair value estimate to CHF 318 per share/$41.50 per ADR from CHF 349/$43.50.
Karen Andersen, CFA, is a healthcare strategist for Morningstar.
While we previously lowered our estimates for Tecentriq in bladder cancer following the lack of an overall survival benefit over chemotherapy in the Imvigor 211 study, our valuation is more closely tied to Tecentriq’s potential in lung cancer, where reported data has remained strong, and this did not materially affect our valuation. We remain bullish on upcoming catalysts (including data on hemophilia drug emicizumab in July, an expected strong launch for multiple sclerosis drug Ocrevus in coming quarters, and important lung cancer data for Tecentriq/Avastin/chemo in the third quarter), and the shares continue to look undervalued. We see Roche’s wide economic moat as stable, given the firm’s dominance in branded cancer therapies and in vitro diagnostics globally, as well as the potential increase in the intersection of these two markets.
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