Roche Earnings Preview: Here’s What to Look For

Roche Holding (RHHBY) is scheduled to report second-quarter 2021 earnings on July 22.

Switzerland-based Roche Holding Ltd. is a leading health care company that develops and manufactures pharmaceutical and diagnostic products. Over the past year, shares of the company have jumped 6.2%, and it is now trading at over $48.

A strong set of numbers in Q2 might propel the stock price upward, so let’s take a closer look at what analysts on the Street are expecting.

Roche Q2 Expectations

For Q2, the Street expects Roche to report an adjusted EPS of $1.37. (See RHHBY stock charts on TipRanks)

The company did not provide any Q2 guidance, but confirmed the guidance for 2021.

For 2021, the company expects sales to grow in low- to mid-single digits and core earnings-per-share to rise broadly in line with sales.

Prior Quarter Snapshot

Roche’s performance in the first quarter of 2021 was mixed, as COVID-19 disruptions and biosimilar competition weighed on the company’s pharmaceuticals business. However, a surge in COVID-19 diagnostics tests aided results to some extent.

The company reported total sales of CHF 14.9 billion, down 1% from the year-ago quarter due to the weak demand environment stemming from the COVID-19 pandemic.

Factors to Note about Roche

Roche conducts its operations through two divisions: Pharmaceuticals and Diagnostics.

In the Pharmaceuticals division, the key focus areas include Oncology, Virology, Inflammation, Metabolism, and Neuroscience. The segment accounted for 71% of total sales in the first quarter.

Sales at the Pharmaceuticals division were down 9% to CHF 10.6 billion in Q1, due to competition from biosimilars and an overall weak demand environment.

Additionally, the pandemic could continue to have a negative influence on the division’s overall sales performance in the upcoming quarter, particularly for medicines that require frequent trips to hospitals or health clinics. Furthermore, sales may have been impacted by a decrease in medical appointments, as a result of fewer doctor visits during lockdowns.

Nevertheless, the additional sales of new medicines used to treat COVID-19 are expected to have given a boost to this segment.

Coming to the Diagnostics division, this segment accounted for the remaining 29% of total sales in the first quarter. The division sales were up 55% to CHF 4.3 billion in Q1.

This segment is expected to have continued to perform well in the upcoming quarter, driven by increased demand for COVID-19 tests. The recent rise in cases is expected to have kept testing around longer than anticipated, benefitting Roche’s diagnostics division.

Moreover, the fact cannot be ignored that COVID is not going away anytime soon, despite the easing of most countries’ limitations. The SARS-CoV-2 virus’s variants are boosting the chances of COVID comeback this winter. Despite the increasing rates of vaccination, the pandemic continues to wreak havoc, giving rise to the need for treatments, particularly for the variants of concern.

Therefore, the demand for Roche’s nasal antigen tests kit and other drugs for the treatment of this virus is expected to have remained strong during the quarter.

In May, the company completed the acquisition of GenMark for $1.8 billion. The acquisition is expected to broaden the company’s molecular diagnostics capabilities. Furthermore, GenMark’s offerings are likely to have supplemented Roche’s COVID-19 diagnostic solutions portfolio, resulting in increased sales in this business.

During the first-quarter call, Roche CEO Severin Schwan said, “In 2021, Roche remains strongly committed to the fight against COVID-19. The uptake of our recently introduced diagnostic tests and medicines remains strong, while we continue to see the expected impact from biosimilars on sales of our established medicines.”

Schwan further commented, “Our broad product pipeline keeps making good progress. I am particularly pleased about the highly encouraging study results of our immunotherapy Tecentriq in early lung cancer and of faricimab in ophthalmology. The upcoming acquisition of GenMark underlines our commitment to help control infectious diseases and antibiotic resistance.”

Key Developments

On July 20, Roche’s antibody cocktail, developed in partnership with Regeneron, was approved in Japan. The antibody was developed with the aim of treating patients with mild to moderate coronavirus symptoms. Management claims that the antibody cocktail reduces hospitalizations and deaths of mild COVID-19 cases by 70%.

In other news, on July 7, The World Health Organization (WHO) suggested that COVID-19 patients take the Roche arthritis medicine Actemra, since it lowers the risk of death and the need for mechanical ventilation.

Additionally, on July 1, Roche announced that it plans to cut 300-400 jobs this year at product development (PD) sites.

On the positive side, on June 28, Roche announced that the European Commission (EC) has approved Enspryng for the treatment of adults and adolescents from 12 years of age living with anti-aquaporin-4 antibody (AQP4-IgG) seropositive neuromyelitis optica spectrum disorder (NMOSD), as a monotherapy or in combination with immunosuppressive therapy (IST).  

These approvals will help Roche to expand its drug portfolio and thereby add to its top-line numbers going forward.

Analysts’ Recommendations on Roche

Ahead of the Q2 earnings release, Deutsche Bank analyst Emmanuel Papadakis upgraded the stock’s rating to Buy but did not provide a price target.

Another analyst Peter Welford of Jefferies analyst upgraded the stock to Buy from Hold, and increased the price target to CHF400.00 from CHF330.00.

RHHBY scores a 8 of 10 from TipRanks’ Smart Score rating system, indicating that the stock has strong potential to outperform market expectations.

Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.