Finance
 Posted by - April 4, 2016

Rayno Biopharmaceuticals: New Buy Idea – Roche Plc.

Roche/Genentech Has a Strong Pipeline in Diagnostics and Therapeutics to Drive Moderate Growth in 2016

New Stock Pick: Roche Holding (RHHBY) $30.36

Over the past 3 months we recommended several new buys for the Rayno Biopharma Portfolio emphasizing moderate growth, relative safety and dividend plays. Three large cap biopharma stocks were previous picks: Abbvie (ABBV), Bristol-Myers Squibb (BMY) and Gilead Sciences (GILD). Today we add another large cap Swiss pharma Roche Holdings a leading drug and biotech Company with a dominating high growth position in diagnostics with revenues accounting for about 22% of total. Roche revenue growth should be up for 2017 at ~6% compared to previous years. Total revenues for 2015 were $50.35B with a Net Income of $9.04B. Cash flow from operating activities was $15.236B.

The investment thesis for Roche is as follows:

  • Synergy from a strong position in both diagnostics and biopharmaceuticals. Historical CAGR growth of 15% from immunodiagnostics and total global diagnostic revenues of about $10.9B growing at 6%.
  • Broad diagnostics products portfolio and pipeline: strong platforms with Cobas and Ventana; positioned in oncology, infectious diseases, CVD, diabetes care and virology. Innovator in companion diagnostics.
  • Forward PE of 15.2 lower than some peers. Current PE is 23, an attractive valuation given growth prospects.
  • Dividend of 3.4% converted from Swiss francs (CHF 8.1/sh.) CHF currently 0.951/dollar.
  • Roche seeks partners with both diagnostics and emerging biopharma companies to boost R&D.
  • diagnostics products in immunology and immunology with 8 NMEs (new molecular entities) with a high success rate from R&D.
  • Two potential blockbuster products which would boost sales in 2017: Atezolizumab for lung and bladder cancer; and Ocrelizumab for a more serious form of Multiple Sclerosis expected to launch in 2016.

    • Large cap biopharmaceutical stocks have been  laggards over the past six months due to political concerns about pricing and earnings growth. Roche stock has been a laggard over the past 12 months down 14.7% so look for support above the $30 level.

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