Stock pick: Marsico

Roche (SWX: ROG) develops and manufactures prescription drugs in the areas of oncology, central nervous system disorders, and autoimmune diseases along with diagnostic products. The company has well-known, legacy products such as Avastin, Herceptin, and Rituxan which accounted for a majority of the company’s revenues and profits up until 2018. As these products’ patents began to expire in 2019 and 2020, investors became overly concerned that sales erosion would occur and misunderstood the underlying growth pipeline as the company continued to invest for the future. We seek to invest behind innovation, and ROG remained innovative and invested in oncology with Tencentriq (lung, breast, and urothelial cancer), Venclexta (leukemia), Gazyva (lymphoma), Hemlibra (hemophilia), and Ocrevus (multiple sclerosis).

The reason ROG has been successful with recent drug launches is because the company understood the unmet medical needs in these areas and tested new therapies to improve upon the standard of care. In 2018, 21% of total revenues consisted of new products with the goal to achieve 62% of revenues from new products by 2023. The recent quarterly report highlighted the company’s transition as new products generated CHF 1.5 billion in revenues in the face of CHF 857 million in patent expirations.

In addition to its industry leading position in pharmaceuticals, ROG remains one of the industry leaders in the diagnostics space, which consists of centralized labs, diabetes care, and tissue-based testing. This market remains a consistent growth driver, and ROG has recently focused upon the increasing need for molecular and blood-based COVID-19 tests due to the current pandemic. ROG is leading the innovation in this space with the goal of achieving twenty millions tests per month in the near-term.

Lastly, a potential downside risk to the stock is a quick development of a COVID-19 vaccine which could limit the need for ROG’s tests.

This information has been prepared and provided by Marisco. To the extent that includes any financial product advice, the advice is of a general nature only and does not take into account any individual’s objectives, financial situation or particular needs. Before making an investment decision an individual should assess whether it meets their own needs and consult a financial advisor. This stock pick was published on 22 May 2020 and is subject to change.