Roche SWOT and PESTLE Analysis

Strength

1. Strong Sales Trajectory: Roche has reported strong sales growth in both pharma division (5%) and diagnostics division (5%) . As per the 9- month report from January to September2017, sales grew from 37,505 to 39,434. The Pharma division sales increased from 29,140 in 2016 to 30,636 in 2017 and diagnostic division sales increased from 8,365 in 2016 to 8,798 2017. Internationally, sales grew by 4%, which were led by the Latin America and Asia-Pacific sub regions. In 2017, Roche’s sales expectations growth is in mid-single digit, at constant exchange rates. The core earnings per share are targeted to grow broadly in tandem with sales, at constant exchange rates. Roche anticipates to increase its dividend in Swiss francs. According to Forbes Roche is #14 in Multinational performers, #23 in market value, #31 in profit, #79 in Global 200, #146 in sales, #165 top regraded companies & #372 in assets in 2016.

2. Revenue increase due to Launch of new drugs: The surge in sales is mainly driven by the new launches viz-a- viz Ocrevus, Tecentriq and Alecensa contributed CHF 0.9 billion to the new sales which accounted for more than 50% growth in division’s progress. In the US, overall sales of Ocrevus, Tecentriq & Xolair surged by 10%. The pharmaceuticals division sales moved up 5%, driven mainly by Ocrevus, Tecentriq and Perjeta at CER. The advances in product disposals were CHF 231 million compared to CHF 50 million in the first half of 2016. Ocrevus has had a good uptake in US markets as well as Japanese markets due to growing demand. In US sales grew by 8% led by the approval of Tecentriq and Ocrevus which were launched in April 2017. The interim sales of Ocrevus was 192 CHF million. The growth of Tecentriq sales was due to approval in the US in metastatic bladder cancer and in metastatic non-small cell lung cancer. Roche continues to gain market share & new business with recently launched products.

3. Innovation & New Product Development: Roche launched four new medicines: Cotellic (advanced melanoma), Alecensa (lung cancer), Venclexta (chronic lymphocytic leukemia, jointly commercialized with AbbVie) and Tecentriq (bladder and lung cancer). New approaches to clinical endpoints and trial designs have so far helped it in remaining the front runner. A major highlight was the US launch of Roche’s cancer immunotherapy medicine Tecentriq which is the foremost FDA-approved treatment for people with a specific type of bladder cancer in more than 30 years. Roche spent colossal amount of CHF11.53 billion ($11.42 billion) in 2016, nearly 23% of its CHF 50.57 billion in revenue. It also recorded a 20% surge in R&D spending as compared to 2015. It was the biggest increase among the top 10, with most of this increase going into its pharmaceuticals divisions & the rest into diagnostics.

4. Strong Financials: An upsurge of 4% was accounted in Roche’s core operating profits in 2016. Its core operating income increased to 18,420 CHF Millions. The sales of pharma division rose by 3% and its core operating profits accounted 4% growth at CER. The operating free cash flow of pharma division was 13,859 CHF Million & 720 CHF Million for Diagnostics division. This counterbalanced the dividends paid & net debt which decreased to 13.2 Billion. The net debt as a percentage of total assets stood at 17%. The pharma net working capital increased by 3% and diagnostics recorded 10% increase in net working capital in 2016. The dividend per share showed 1%(CHF) increase. As per the half yearly report of 2017, the dividends paid increased from 6,969 in 2016 to 7,070. Operating free cash flow increased by CHF 2.1 billion, or 37% at CER, to CHF 7.6 billion. One major factor in this significant increase was the growth in the underlying cash generated from operations, which increased to CHF 11.2 billion, as cash revenues grew more quickly than cash expenses.

5. Strong presence in global markets: Roche’s wide geographical scale and reach ensures a strong presence worldwide. To efficiently meet the increasing demand for their products and distribute them, they are expanding their global biologics manufacturing network. In North America, a strong, above-market growth performance was recorded. China generated more than 50% of the absolute sales growth. The CINtec Histology test has become a global standard of care. Thus, due to their global presence they understand the specific challenges and circumstances in all the markets and therefore, have greater market penetration.

Weakness

This section is available only in the Complete report on purchase.

Opportunity

1. Increase in life expectancy opening up new ways to grow sales: As the world’s population is growing, the changing healthcare landscape proposes countless opportunities for research-focused healthcare companies with extensive know-how. By investing in future Roche targets key emerging markets which may be recording lower levels of growth than expected but keep growing steadily. In China, a growing population with access to innovative medicines should sustain market growth notwithstanding geopolitical risks, and continued access growth.

2. Opportunities for growth and development through technology: Roche aims to ensure access to medicines worldwide. The Middle East markets is one example of how patients in emerging markets can benefit from their innovative medicines and hence helps in increase of sales. Roche aims at the espousal of the finest technology and partnerships which can leverage the influence of their unique pharmaceutical-diagnostic structure to advance science and develop new therapies in the most efficient and cost effective way. This will also make their pharma and diagnostics division more competitive.

2. New Acquisition of Ignyta to aid in revenue growth: Ignyta’s acquisition will enhance its expertise in rare cancers & hence would strengthen as well as broaden Roche’s oncology portfolio. Its target is cancers with rare mutations. Ignyta’s lead molecule, entrectinib, is at present in 2nd Phase of clinical trials & targets rare mutations in non-small cell lung cancer and solid tumors. Once the trials are over and requisite permissions are obtained, Roche has a fair chance of expanding its market share in cancers with rare mutations despite growing competition.

Threat

This section is available only in the Complete report on purchase.

Political

1. Variation across countries in Drug Regulatory Policies: The difference in drug regulatory policies have impacted Roche’s sales in 2016. Delay or inability in obtaining regulatory approvals or bringing products to market & increased government pricing pressures may cause actual results to differ substantially in the future from those anticipated in forward-looking statements of 2017. UK sales grew 11% due to a governmental Tamiflu order while being negatively impacted by the Cancer Drugs Fund’s delisting of Avastin for certain indications. Avastin sales in Japan decreased by 3% due to the negative impact from biannual government price cuts in 2016 & overall decreased by 2% due to the negative impact from bi-annual government price cuts which was partially offset by volume growth. MabThera sales in Europe declined by 1% driven by a price cut by France government. Roche’s management’s judgement regarding the eventual resolution with national tax authorities of double taxation conflicts were challenged.

2. Adverse Impact on sales post Brexit: At present, new drugs are sanctioned by the European Medicines Agency, but for upcoming approvals, Britain may have to set up its own drug approval system and which could reduce sales in that region. According to Roche CEO, due to delay in setting up of its own regulatory body, doing R&D in that region will be unfavourable & if the delay persists then the cost of the ongoing R&D would rise In the process of Britain establishing its own governing body would slow down the process of upcoming drug approvals which implies delay in launch of new drugs. . Even now Britain is a tough market for the launch of expensive new drugs for the modern cancer treatments produced by Roche , thus these factors would only lead to Roche losing its competitiveness and hence earnings in Britain.

Economic

1. Better Market Penetration due to Differential Pricing: Roche uses pioneering pricing systems viz. personalized reimbursement models (PRM) and international differential pricing (IDP) for broader markets. PRM refers to pegging prices to the benefits that they accrue to the patients in different symptoms and combinations. This leads to an increase in market share as the drugs become more economical for the masses. IDP pegs the prices paid by public health care units with the relative incomes & thus increase access even in the emerging & undeveloped markets which increase sales by targeting purchasing power parity. Despite an increase in market prices of various drugs up to 9.9% by several pharma companies, Roche did not increase prices (owing to its innovative pricing methods). Value based pricing helps in acquiring greater market shares and thus increase revenue worldwide and maximize profits.

2. Sales growth due to inflationary pressures: In 2016, sales in the International region grew 18% and were primarily due to increased market access in China and South Korea as well as by inflationary price increases in Argentina. The sales growth in Latin America (+28%) was due to new tenders, volume growth and local inflationary effects which led to price increase. For 2017’s interim sales, diabetes care sales in Latin America rose by 3%in pharma division& 8% in diagnostic division. However, the costs for drug development continues to rise faster than inflation and free prescription drugs which can harm its sales.

Social

1. Aging population and growing diseased population: The significant advances in diagnosing and treating severe diseases & improvements in the delivery of healthcare, have steadily enhanced health outcomes and increased life expectancy in recent decades. The aging population and diverse demands in developed countries, and improved penetration in global healthcare and rapidly growing populations in emerging countries has also led to increased demand of drugs & diagnosis. With differentiated portfolio, Roche has bright chances of furthering its market share and hence expand earnings.

2. Growing demand of its Anti-Aging products: As per the Global Anti-Aging Products and Therapies Market report, the Anti-Aging Products & Therapies Market projected to reach a value $237.8 billion at the end of 2022. Roche is one of the top players in this league. Roche tweaked one of its cancer drugs (implying low cost of R&D) and is now selling it with a different name to keep profits rolling in. As average incomes are rising worldwide, the demand for premium anti-aging products is bound to rise and thus, hold great potential for Roche to further strengthen its hold in the segment.

Technological

This section is available only in the Complete report on purchase.

Legal

This section is available only in the Complete report on purchase.

Environmental

This section is available only in the Complete report on purchase.