Can Roche Keep Its Bull Run Going?

As one of the largest pharmaceutical stocks in the world and with one of the biggest pipelines in the business, Roche (NASDAQOTH: RHHBY  ) is bound to experience the odd disappointment every now and then.

Indeed, recent news flow for the company has been mixed, with a couple of disappointing developments regarding late-stage trials. However, shares are still performing well in 2014, up 6% while the S&P 500 is up 1.5%. Furthermore, the company still has vast potential. Here's why.

Bad news, good news
As mentioned, just this week the company reported that a drug that was personally picked out from the company's pipeline by CEO Severin Schwan two years ago has experienced highly disappointing news flow. The drug in question is a cancer treatment called MetMab. The phase 3 trial that studied MetMab in combination with Tarceva (a treatment for lung cancer) was ended early after an independent monitoring group noted that the drug was failing to help patients.

In addition, Roche also experienced failure with its schizophrenia drug, bitopertin, which failed two phase 3 trials in January of this year. The drug did not meet its primary endpoint of reducing negative symptoms (such as social withdrawal and lack of motivation) at 24 weeks when compared to a placebo.

Splitting the two disappointing pieces of news was a far more encouraging update. The EU Committee for Medicinal Products for Human Use recommended that the European Commission approve a new formulation of MabThera for the treatment of patients with common forms of non-Hodgkin lymphoma. Although not an approval, the committee's recommendations are usually followed, and Roche expects to receive a final decision from the European Commission later in 2014.

A strong 2013 and potential catalysts
Along with this piece of encouraging news, Roche reported in January an increase in revenue of 6% for 2013 (when compared to 2012), with pharmaceutical sales 7% higher and diagnostic sales rising by 4%. Together, they contributed to a growth in core earnings per share of 10%. More importantly, though, Roche seems to be making encouraging progress with regard to future drug development, too.

It has a strong pipeline of new drugs, with 15 new molecular entities in late-stage development, as well as the potential for increased sales from new drugs such as Gazyva (U.S. approval for chronic lymphocytic leukemia), Kadcyla, and Perjeta, the latter two being used to treat women with a particularly aggressive form of breast cancer.

Sector peers
Of course, Roche is not alone in experiencing mixed news flow in 2014. Sector peer Pfizer  (NYSE: PFE  ) saw its potential treatment for an advanced form of lung cancer, dacomitinib, miss its main goals in two late-stage studies. The results from a third study are expected later this year.

As with Roche, it hasn't all been bad news for Pfizer, though. For instance, management remains upbeat regarding the pneumonia vaccine Prevnar 13, as well as breast cancer drug palbociclib. The latter hit its mid-stage study goal last month and, if approved, could generate an $5 billion in peak annual sales. The former, meanwhile, also met its objectives in a trial that tested the effectiveness of the vaccine in 85,000 patients age 65 or older against pneumonia.

Recent news flow for sector peer Johnson & Johnson (NYSE: JNJ  )  has been more positive than that for Pfizer and Roche. For instance, the Committee for Medicinal Products for Human Use gave a positive opinion recommending marketing authorization in the European Union for Vokanamet. This is a combination treatment for type 2 diabetes using canagliflozin and metformin, which help mean blood glucose and body weight reduction.

In addition, last month the FDA approved Johnson & Johnson's Thermocool Smarttouch Catheter, which provides doctors with contact force stability when applying radiofrequency energy against the heart wall during catheter ablation. This has been shown to improve outcomes, as inconsistent tissue contact could result in incomplete lesion formation, leading to a need for additional treatment. 

Looking ahead
So, while Roche has had some disappointing news flow of late, this is something that comes with the territory of being in the pharmaceutical business. Furthermore, there was some good news regarding the CMHP's positive recommendation and results for 2013 showed that the company is performing well. Furthermore, with a strong pipeline that includes 15 new molecular entities in late-stage development, there appear to be a number of catalysts that could see Roche enjoy a great 2014 after a strong 2013.

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