Sick Economics

Searching For Healthy Profits In The Stock Market



By Dabin Im, Healthcare Analyst


Roche Holding AG ($RHHBY) is a healthcare company that has two divisions: pharmaceuticals and diagnostics. Under its pharmaceuticals division, members of the Roche group include Genentech (an American biotech – wholly owned affiliate) and Chugai Pharmaceuticals (Japanese biotech – subsidiary). Roche acquired Ventana Medical Systems, which provides cancer diagnostics, and controls Foundation Medicine, which provides genomic testing.  In 2020, Roche’s revenue was 64.66 billion USD ($49.37 billion from pharmaceuticals and $15.29 billion from diagnostics). It is the world’s largest biotech company with 39 pipeline medications in phase 3 for 50 indications, 4 medications filed for FDA approval, and 37 pharmaceuticals on the market (17 biopharmaceuticals). With a market cap of $326.31 billion and over 100,000 employees around the world, Roche is a leader in the healthcare industry. 

There are mixed opinions about whether Roche is worth investing in, especially for new investors. In 2019, three of Roche’s blockbuster cancer medications (Avastin, Herceptin, and Tarceva) came off patent. Their total lifetime sales in the US amount to $100 billion, which is a fairly large portion of Roche’s revenues. With these medications losing their patents, pharmaceutical sales in the US decreased by 6% the following year in 2020.  With more medications coming off patent in the near future, investors are worried about its growth potential and when it can develop new blockbuster medications to make up for the ones losing patent. However, by investing around 20% of its revenue back into research and development every year, Roche is always thinking ahead.  

Although oncology made up 52.4% of its pharmaceutical sales in 2020, Roche is continuously striving to diverse its expertise with various disease areas, such as oncology, neuroscience, infectious diseases, immunology, ophthalmology, cardiovascular, and metabolism. IDEA Pharma, a leading pharmaceutical consulting group, ranked Roche #1 in its 2020 pharmaceutical innovation index. Innovation is defined as the return on invention, which was mainly attributed to Roche’s medication, Tecentriq. In 2019, Tecentriq, was the first immuno-oncology medication to get FDA approved for triple-negative breast cancer and extensive-stage small cell lung cancer. These diseases were very hard to treat because triple-negative breast cancer is aggressive, spreads very quickly, and has a high recurrence rate. Small cell lung cancer is when cancer cells (tumors) form in the lung tissue. The late stage has a 5-year survival rate of 2%.  As an immuno-oncology medication, also known as cancer immunotherapy, Tecentriq improves the body’s natural ability to fight cancer by stimulating the immune system. In addition, Roche’s combination of Tecentriq and Avastin increased life expectancy rates for liver cancer patients. It decreased the risk of death by 34%, compared to the current standard of care. Roche’s multiple sclerosis medication, Ocrevus, significantly decreased the chances of wheelchair requirements through early treatment. Therefore, Roche’s medications not only prolong life expectancy but also increase quality of life.

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Roche’s pharmaceuticals division goes hand in hand with its diagnostics division. With a quick, accurate diagnosis, patients are able to prevent, diagnose, and monitor the progression of various diseases. Knowing sooner rather than later can save so many future costs, such as CT scans and hospitalizations. For example, Elecsys s100 test is a blood test, which identifies a potential brain injury by testing for a certain protein after a fall. By ruling out a brain injury through a blood test, patients can avoid undergoing a CT scan, which uses radiation and can be harmful for their health. It not only detects potential brain injury but also can be used to help manage patients suffering from a type of skin cancer called malignant melanoma. 

Its diagnostics division rapidly grew over the past year, especially with 15 different solutions for COVID-19 diagnostic tests. Some may think that Roche Diagnostics will not be as lucrative once the pandemic is over. However, its advanced technology can be used to detect many other respiratory viruses and provide a variety of in vitro (test tube) tests in cardiology, hematology, oncology, women’s health and much more. From a simple blood test, healthcare providers will be aware of crucial labs such as blood sugar, cholesterol and other values that give an idea of how their kidney and liver functions are. Roche Diagnostics is also developing blood tests to diagnose cancer. FDA approved FoundationOne Liquid CDx, which is a liquid biopsy test by Foundation Medicine, which Roche has controlling interest in.

The following are the different disease states in which Roche Diagnostics comes into play:

  1. In oncology (cancer), Roche Diagnostics already has about 350 tests, including a first-line diagnostic screening for a sexually transmitted infection called Human papillomavirus (HPV). 
  2. In cardiovascular and infectious diseases, Roche has 35 diagnostic tests in each disease area including a test that diagnoses a heart attack the quickest. 
  3. In neurology, Roche has three diagnostic tests and is currently developing blood-based test to measure markers for neurodegenerative diseases such as Alzheimer’s disease. 
  4. In addition to the 20 tests in women’s health, Roche Diagnostics is developing more that measure markers for polycystic ovary syndrome and endometriosis. 

In addition to the approximate 400 other miscellaneous tests available for various diseases and conditions, Roche Diagnostics continues to innovate. Roche has spent on research and development since 2016, exceeding its total 2020 revenue, which proves that Roche will continue to innovate. 

The recommendation on this stock simply depends on the type of investor you are. If you are looking to make quick returns, this stock will probably not be the best for you. However, if you want a safe long-term stock and a dividend yield of around 3% without having to worry about it every day, then Roche is definitely worth considering. 


 Disclosure: The Sick Economist owns shares in Roche. 


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