Biosimilar and COVID-19 Headwinds Weigh on Roche’s Q3 Results, All Eyes on Upcoming Alzheimer’s Data

We’re maintaining our CHF 433/$55 fair value estimate for Roche following third-quarter results that were in line with our expectations. COVID-19-related sales in the pharma division (Actemra and Ronapreve) and COVID-19 diagnostics all saw significant declines in the quarter, driving Roche’s constancy currency top-line decline of 6%. However, excluding COVID-19 products, third-quarter growth was in positive territory (2% pharma, 7% diagnostics), which we think demonstrates the strength of the firm’s underlying portfolio and wide moat, despite continuing pressure from biosimilar versions of several drugs. Following Regeneron’s positive data for high-dose Eylea, we remain bullish on the launch of Roche’s new ophthalmology drug Vabysmo as well as new blood cancer launches (Polivy and CD20 bispecifics Lunsumio and glofitamab) that should begin to drive sales in 2023. After some minor adjustments to our model, we still see roughly 2% top-line growth and 3% bottom-line growth for the full year, consistent with management’s confirmed outlook for stable to low-single-digit top-line growth and low- to mid-single-digit core EPS growth.