Roche Holding AG ADRRHHBY

Morningstar Rating

Stock Research and Analysis

by Karen Andersen, CFA

As the market leader in both biotech and diagnostics, Roche is in a unique position to guide global health care into a safer, more personalized, and more cost-effective endeavor. Key acquisitions, such as Ventana Medical and Genentech, complement this Read more

Bulls Say

Two thirds of Roche's pharmaceutical products are biologics, making it the biggest biotech in the world. Despite the pending creation of a pathway for approval of generic biologics in the U.S., Roche's strong patents leave it relatively unaffected, with only 14% of pharma sales expiring through 2012.

Roche's drug portfolio and pipeline are both strong. Avastin has been buoyed by market share growth and approval for additional forms of cancer, and several innovative drugs in other markets, such as hepatitis C and diabetes, are progressing through clinical trials.

Roche successfully integrated Ventana into its diagnostics business in 2008, and efforts to foster a personalized medicine collaboration between diagnostics and drug development could pay off, given the heightened focus on cost effectiveness in the United States.

Roche's decision to take full ownership of Genentech not only allows the firms to operate more efficiently as a combined entity, but also secures rights to the fruits of Genentech's research after 2015, when international licensing options on Genentech's pipeline were set to expire. Read more

Bears Say

Two thirds of Roche's pharmaceutical sales are based on Genentech-derived drugs, and Roche needs to expand prescribing labels and develop next-generation versions of these drugs to support growth from novel drugs.

Roche relies on three top-selling cancer drugs--Rituxan, Avastin, and Herceptin--to provide 45% of pharmaceutical division sales, or 35% of total revenue. If U.S. health-care reform leads to pricing pressure on expensive cancer drugs, Roche's profits could be vulnerable.

Data released in the spring of 2009 revealed that adding Avastin to chemotherapy in early-stage colon cancer failed to improve the odds of a patient remaining disease-free over chemotherapy alone. This is the first trial of Avastin in early-stage cancer, and it could foreshadow negative results in similar trials in lung and breast cancers, as well as reduced Avastin sales-growth potential.

The diabetes-care arm of Roche's diagnostics division has experienced intense competition in the U.S., and expensive acquisitions as well as higher R&D spending also had a significant impact on the diagnostics division's profitability in 2008. Read more

Strategy

Roche seeks to offer a growing portfolio of innovative pharmaceutical and diagnostic products, and plans to further pursue personalized medicine by combining efforts in both businesses to improve care Read more

Management

Although we think Roche's governance has been above average, vague compensation standards and a separate class of voting shares prevent the firm from surpassing a fair grade for stewardship, in our opinion. Franz Humer stepped down from his position Read more

Profile

Roche is a Swiss biopharmaceutical and diagnostic company. The firm's best-selling pharmaceutical products include a variety of oncology therapies from its recently acquired Read more

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