Roche: Value Remains Despite Covid-19 Revenue Growth Loss (OTCMKTS:RHHBY)

Roche (OTCQX:RHHBY)(OTCQX:RHHBF)(OTCPK:RHHVF) still has good long-term prospects since the last time I wrote an article about it. This was with respect to an article entitled “Roche, With Ocrevus And Fenebrutinib Advancement, Should Be Top MS Contender”. In this article, I noted that this company had good long-term value with Ocrevus, which has been approved to treat patients with multiple sclerosis (MS). Plus, that it was working on another drug for its pipeline, known as Fenebrutinib, which is also being advanced for the treatment of patients with MS. However, in the case of this drug, it is specifically targeting patients with relapsing MS and primary progressive MS. There is value here with Fenebrutinib because results from a phase 3 study using it to treat both of these patient populations is expected to be released in 2025. Thus, the value of both Ocrevus sales increasing, plus the promising of Fenebrutinib, still hold true.

What is also starting to grow in sales would be Vabysmo, which has been approved for several eye disorders. Why should investors care about this biotech now? That’s because each quarter was putting a bit of a damper on increasing sales of its drug in its pipeline. However, with the report of its most recent Q1 2024 sales, it expects no further impact relating to the Covid-19 sales loss. Thus, I believe that value can be achieved here. How so? Well, Vabysmo is its best-selling drug in its pipeline; thus this is going to be the main value driver going forward. Not only that, but it has gone on to establish a huge acquisition, which might bring about several drugs that could be differentiated from Eli Lilly (LLY) Zepbound for the obesity drugs market. With a steady sales growth rate of mid-single digits percentage (7%), plus possible growth from new drugs, I believe that Roche can still be a good long-term name to look into. Plus, the fact that it also has several catalysts on the way for investors to look forward to in 2024 as well.

Vabysmo Will Still Drive Shareholder Value Going Forward

A good thing about Roche is that it can finally put the loss in sales of Covid-19 behind itself. If this is the case, then what could possibly drive value going forward? I would say that it all has to do with its drug known as Vabysmo. The reason why is because this drug has already been approved for the treatment of patients with several eye disorders, as I described above. That is, it has been approved by the FDA to treat patients with the following: Wet age-related macular degeneration (Wet-AMD), diabetic macular edema (DME) and Retinal Vein Occlusion (RVO). This is the best-selling drug for Roche, because of how much it continues to grow compared to the rest of its pipeline. Consider that sales of Vabysmo have grown year over year in Q1 of 2024 by 108%. The drug has already been expanding in both indications of Wet-AMD and DME already. However, it has seen strong growth as it relates to another indication that it has been approved for, which is RVO. Consider that just after only 4-months of being on the market for this indication, it has already taken up 8% of market share in this area. If further growth like this continues for this indication, then Vabysmo should remain “king” of Roche’s pipeline in terms of product sales growth.

Especially, when you consider that it is looking to add another indication under the belt of this drug. This is with respect to the Q1 2024 pipeline update it gave, in which it noted that a phase 3 study had been initiated to use faricimab (Vabysmo) for the treatment of patients with myopic choroidal neovascularization (CNV). The only downside I see with this program thus far is that it was just initiated in March 2024. The estimated primary completion date according to the clinical trials website is February 2026. Thus, I wouldn’t expect the release of final results from this study until the 1st half of 2026. Consider that excluding currency effects, Vabysmo more than doubled in the released earnings report, showing revenue of 847 million francs, surpassing analysts’ expectations. A consensus of analysts only expected quarterly revenue for this drug to reach 750 million francs. This proves, that as long as Vabysmo continues to surpass analysts’ expectations, then Roche will be in good shape for an extended period of time.

One other item to point out is that there is another drug in its pipeline, which has been gaining steam, which is Phesgo. This drug has been approved by the FDA to treat patients with HER2-positive breast cancer. Matter of fact, it can be given to either early breast cancer (EBC) patients or metastatic breast cancer (mBC) HER2-positive patients. The reason why I think this is another drug to keep an eye on in terms of sales growth is because of how much growth potential it has. It is already tracking behind sales growth of Vabysmo going strong. It has seen net product sales growth of 70% year over year in Q1 of 2024.

Acquisition In Place To Compete In the Obesity Drugs Treatment Space

Another reason to keep an eye on Roche would be that it has been able to acquire a biotech that has given it several drugs that are being developed to treat patients with obesity. That is, it paid $2.7 billion to acquire Carmot Therapeutics to be able to get its hands on both of these drugs. Plus, the potential for Carmot shareholders to earn up to $400 million in milestone payments. Why would Roche pay this much to acquire this company? It brought about several drugs that will help it to possibly compete in the obesity drugs treatment market space. The drugs acquired based on this merger agreement were CT-388, CT-996 and CT-868. CT-388 and CT-868 each have dual mechanisms of action, in that they both inhibit GLP-1 and GIP. However, CT-388 is injected subcutaneously once a week, while CT-868 is injected subcutaneously once-daily.

The other drug, CT-996, is a given a once-daily oral pill. The point here is that Roche has several shots on goal in being able to target this large obesity treatment markets space. The global anti-obesity drugs market could grow to $100 billion by 2030. This is a huge opportunity, of course, but there are several competitors in this space that Roche will have to eventually contend with. In order for Roche to compete against other competitors like Eli Lily with Zepbound plus other companies developing obesity drugs, it will have to offer a differentiated type of treatment option. Either that, or it must prove that its drugs are superior in terms of safety or efficacy.

Speaking of other pharmaceutical companies developing obesity drugs, these would include the likes of Viking Therapeutics (VKTX), Altimmune (ALT) and Amgen (AMGN). Speaking of Amgen, this might a highly worthy competitor to keep an eye on. Why is that? That’s because it is taking an entirely different approach to treating patients with obesity. It intends to advance a GIPR agonist conjugated to two GLP-1 analogues. That is, there is potential for a drug like this to be able to continue to do what other GLP-1 drugs can accomplish, but for patients to keep the weight off even if they stop taking it. Plus, it might be possible to give AMG133 (MariTide) once per month. This remains to be seen, but this could possibly make Amgen an eventual market leader in this space, if it can somehow pull that off. How does Roche expect to compete against the currently available GLP-1 and/or GIP drugs? Well, it all has to do with altering such molecules with respect to their signaling. In essence, by tuning the GPCR signaling that takes place with respect to these drugs, it could lead to a differentiated pharmacology profile, which in turn should result in increased weight loss. This is exactly what was proven by Carmot Therapeutics when it released results from a few studies, which were presented at the American Diabetes Association (ADA) Annual Meeting held between June 23rd to 26th of 2023. It was shown that patients, given CT-388 or CT-868, were able to achieve more than 8% weight loss in 4 weeks. Achieving such a drastic weigh loss profile, all the while with a favorable safety profile.

Risks To Business

There are several risks that investors should be aware of before investing in Roche. The first risk to consider would be with respect to the growing sales I noted above with Vabysmo and Phesgo. Despite both of these drugs achieving enormous growth year over year, there is no assurance that such a trend will continue. However, hopefully Vabysmo continues to show such large growth because it is the top-seller for this company and will be the only thing keeping its revenue growth sustained for the time being.

A second risk to consider would be with respect to the readout from the phase 3 study, using Fenebrutinib for the treatment of patients with relapsing MS and primary progressive MS. Results using this drug for both of these indications are expected to be released in 2025. The risk is that if results from these studies are not positive, then Roche will have to rely on Ocrevus to target the Multiple Sclerosis (MS) space.

A third risk to consider would be with respect to the acquisition that Roche completed of Carmot Therapeutics for $2.7 billion. That’s because several of the drugs I noted above being advanced for the treatment of patients with obesity are still in phase 1 or phase 2 clinical testing. There is no guarantee that they will achieve positive results, nor that they will eventually be tested in phase 3 clinical testing. Another risk to consider for the obesity treatment market space is the many competitors that it will have to go against. The reason why I say that is because several other companies are advancing GLP-1 and/or GIP agonists for the treatment of patients with obesity.

A fourth and final risk to consider would be several data readouts that are expected to be released during this year. The first of which is going to be the release of data from a phase 2b study, using prasinezumab for the treatment of patients with Parkinson’s Disease (PD). The second of which is going to be the release of data from a phase 1/2 study using trontinemab for the treatment of patients with Alzheimer’s Disease (AD). The last catalyst to keep an eye on would be the release of results from a phase 2 study using zilebesiran for the treatment of patients with hypertension (HT), expected during this year as well. This last one is an RNA interference (RNAi) therapeutic being advanced for the treatment of this patient population. The hope is that positive data from each of these studies will be achieved, but there is no assurance that one or any of these studies will end up meeting the primary endpoint. Nor, that the results will warrant further advancement. If that were to happen, then it would hamper the company’s ability to advance these drugs towards possible regulatory approvals and commercialization.

Conclusion

Roche has been able to remove the persistence of sale loss due to Covid-19. This should help it in terms of removing a negative stigma of declining sales. The thing is that it still has two drugs I highlighted above with enormous growth potential, which are Vabysmo approved for several eye disorders and then Phesgo, which has been approved to treat patients with HER2-positive breast cancer. Revenues in the most recently reported earnings grew by 2% when accounting for both sales of its new medicines and its diagnostic division.

I believe that there is hope for it in that the acquisition of Carmot Therapeutics should end up resulting in it capturing a portion of the large obesity market treatment space. Whether it is able to develop drugs that will be able to be differentiated from the rest of them remains to be seen, but the mechanism of action being slightly different might give it some competitive edge in this regard. Ocrevus has already been able to capture a large portion of the Multiple Sclerosis (MS) treatment space, as stated in my prior Seeking Alpha article. It still generated an 8% year-over-year growth in product sales for this drug. Roche has been able to adapt this treatment to go from intravenous (IV) infusion to subcutaneous injection instead.

This is possible through the use of Halozyme (HALO) Enhanze drug delivery technology. This company should remain king for an extended period of time, because GlobalData predicts that Ocrevus should remain as the top-selling MS drug, generating $6.3 billion in sales in 2030. It is not riding its entire future, though, only on the back of Ocrevus for the treatment of patients with RMS and PPMS. It is also developing the use of the oral drug Fenebrutinib for the treatment of both of these patient populations in ongoing phase 3 studies. Results from each are expected to be released in 2025 and, if positive, could mean regulatory filings of this drug for the treatment of both of these patient populations in 2026.

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