Swiss pharmaceutical company Roche (RHHBY 0.77%) took a hit from a decline in sales of COVID-19 diagnostic and treatment products in 2022, with group sales inching up 2% at constant exchange rates (CER) to 63.28 billion Swiss francs ($68.34 billion). The company's pharmaceutical and diagnostic divisions were both affected, and net income came in at 13.5 billion francs ($14.6 billion), a decline of 6% compared to 2021 under international financial reporting standards (IFRS).
The company expects "the sharp decline in sales of COVID-19 products" to continue through 2023, leading sales to decrease "in the low single digit range," although it also expects its sales of other products to show strong growth. More specifically, Roche anticipates a drop of 5 billion francs ($5.4 billion) in COVID-19-related sales this year -- roughly 8% of last year's total revenue.
The steep fall-off in sales of products to prevent and treat COVID-19 is a worldwide phenomenon, with almost two-thirds of last year's $100 billion in sales expected to evaporate industry-wide. For Roche, does the near-term softness signify that investors should take a step back?
Strength in the fight against cancer
Analysts are rating RHHBY a buy, perhaps on the strength of its pipeline. Roche refuses to rest on its laurels and has been successful. The U.S. Food and Drug Administration (FDA) approved several new Roche products and/or indications in November and December:
- Lunsumio for follicular lymphoma, a chronic type of blood cancer.
- Tecentriq has a new indication for advanced rare sarcoma (cancer of the soft tissues).
- Arthritis drug Actemra/RoActemra can now be used to treat adults hospitalized with COVID-19.
- Two tests to detect Alzheimer's pathology in its early symptomatic stage.
- The agency granted an Emergency Use Authorization for Roche's monkeypox virus test.
The cancer-focused products, in particular, could expand Roche's reach and revenue. The worldwide market for follicular lymphoma that Lunsumio addresses will grow from $2.2 billion in 2020 to $4 billion in 2028, according to Emergen Research. However, the drug is approved only for the fraction of patients whose cancer has come back after two or more courses of treatment, which will limit the sales potential. It is harder to come by a precise market estimate for advanced rare sarcoma; however, the World Health Organization notes that "rare cancers account for about 25–30% of all cancer diagnoses and 25% of cancer deaths." Additionally, treatment options for advanced or metastatic cancers tend to be limited, so patients and their physicians are always on the lookout for new, effective options such as Tecentriq.
A treasure trove of blockbusters
In Roche's annual report, CEO Severin Schwan noted that Vabysmo, a treatment for certain severe eye diseases that the company brought to market at the beginning of last year, "became one of our most important growth drivers in just a few months." This and four other top sellers -- Ocrevus for multiple sclerosis, Hemlibra for the bleeding disorder hemophilia, Evrysdi for spinal muscular atrophy, and Tecentriq -- accounted for 15.3 billion francs ($16.7 billion) in sales in 2022. And that's just five of the company's 16 blockbusters.
The good pipeline news for Roche continued in February when the company said a phase 3 clinical trial showed that its crovalimab achieved disease control in patients with the rare blood condition paroxysmal nocturnal hemoglobinuria (PNH). Grand View Research estimates the market for PNH treatments will increase from $3 billion in 2020 to $5.8 billion in 2025 in the U.S., Japan, the U.K., Germany, France, Spain, and Italy.
In March, an FDA advisory committee voted yes on the clinical benefit of Roche's Polivy combination for patients with previously untreated diffuse large B-cell lymphoma, another type of blood cancer. Coherent Market Insights says it expects the world market for treatments for this type of cancer to increase from $1.36 billion in 2020 to $1.97 billion in 2027, potentially offering a modest boost to Roche's sales if the FDA approves Polivy, although several other large pharmaceutical companies also offer treatments.
Pipeline's promise of future growth
What will all these developments mean for Roche's development over the longer term? In the annual report, Chairman Christoph Franz pointed to "87 new compounds and 65 additional indications in clinical development or registration" and new products coming out of its diagnostics division as the basis for future growth. With so many multibillion-dollar treatments, the COVID-19 projected sales drop is far from a deal-breaker. In fact, recent approvals could offset some of that drop, allowing the company's growth to be consistent.
RHHBY Dividends Paid (TTM) data by YCharts
A glance at Roche's earnings per share over the past decade shows that despite fluctuations, the company does have a solid history to back up its plans, a possible harbinger of slow but steady growth going forward. During that period, Roche's dividend has grown, albeit slowly, reporting roughly 28% growth. It likely won't make your portfolio grow exponentially, but it could provide a stable position to an investor looking for balance.
