EFTA00309574.pdf

J.P. Morgan CAZENOVE Roche Reiterate OW: Pipeline catalysts including Bladder Cancer data to drive the shares Heading into ASCO, on May 3P', where Roche will present new data for its PD-L I in bladder cancer, we have examined the market potential of this cancer. While it is relatively small at only $0.8bn in PD-LI high patients, the Roche data should serve to further highlight the immuno-onocolgy opportunity. Beyond bladder cancer data at ASCO, potential in other tumours and the data in combination with Avastin, if positive, have the potential to drive further upside to PD-L I forecasts, although on the 1Q14 call Roche seemed more cautious than previously around the Avastin combo opportunity. Beyond PD-LI , phase II ROMULUS data for the Anti-79b in NHL (ASCO on May 31. ) should provide another leg to Roche's growth strategy for the Rituxan franchise, and Kadcyla data in 1st line Breast Cancer from the MARIANNE trial in 2H'14 should cement growth for the HER 2 franchise. With these catalysts to come we reiterate ow Overweight and Dec-14 SFr280 PT, offering 9% potential upside. • Bladder Cancer opportunity has potential to add a further $0.3bn in sales for Roche's PD-Li: Ahead of the ASCO meeting where first data will be presented for Roche's PD-LI on Sat May 31 we have examined the market potential for Bladder cancer. Assuming just use in PD-LI high patients we see a market worth $0.8bn, while use in PD-L I low patients could add a further $0.6bn. As Roche are only conducting a single arm phase II trial next, we conservatively assume that Roche will not reach the market until 2018 and can only take 40% of the market, yielding a $0.3bn peak sales opportunity See inside this note for our detailed review of the Bladder Cancer opportunity. • Roche continues to explore PD-L1 in further tumour types, although there are no timelines for disclosure or data presentation: On the IQ'I4 conference call Roche highlighted that they continue to explore PD- L I in other tumour types, for which they will release data as they become mature. Based on disclosed Phase I clinical trials in colorectal cancer, we continue to believe that this could be one of these indications which would offer a PD-L I positive market potential of $5.5bn. • Estimates trimmed post 1Q sales for slightly increased FX headwind: We have reduced our Core EPS estimates by 1% for 2014-2017 based on a 1% increase to the FX headwind on sales and Corc Operating income. Roche (ROG.VX;ROG VX) PIE Dec 2013A 2014E 2014E 2015E 2015E 2016E Company Data (Prey) (Curt) (Prey) (Curt) Price (SF) 254.00 Revenue FY (SF mn) 46,780 47,059 46,723 49.766 49,336 51,272 Date Of Price 25 Apr 14 EBIT FY (SF mn) 17,904 18,001 17.857 19,244 18.991 19,884 Price Target (SF) 280.00 EBIT Margin FY 38.3% 38.3% 38.2% 38.7% 38.5% 38.8% Price Target End Date 31-Dec-14 EBITDA FY (SF mn) 20,647 20,503 20,359 21,830 21,576 22,558 52-week Range (SF) 274.80-212.80 Net Profit FY (SF rnn) 12,316 12,604 12,563 13,754 13,622 14,454 Market Cap (SF bn) 215.39 Adj. EPS FY (SF) 14.27 14.60 14.56 15.94 15.78 16.75 Shares 0/S (mn) 848 Adj RE FY 17.8 17.4 17.4 15.9 16.1 15.2 Dividend Yield FY 3.1% 3.1% 3.2% 3.2% 3.4% 3.6% Source: Company data. Bloomberg. It Morgan estimates. Europe Equity Research 28 April 2014 Overweight ROG.VX, ROG VX Price: St 254.1;0 Price Target: SF280.00 European Healthcare (Pharma, Biotech) Richard Vosser AC Bloomberg JPMA VOSSER James D Gordon Diana Na (44 20)1742 7022 J.P. Morgan Secumies plc For Specialist Sales advice please contact: Marian Daelpour Price Perloirnanco 215 21 I I I I I Pea hiaf 0.01 2wu p/M ROC.VX Mare pd.* (SwF) MSCI-Fu Ireben41 YM 1m 3m 12m Abs 1.9% .44% 4.4% 9.0% Rd -OA% 4.2% 1.0% -15% See page 16 for analyst certification and Important disclosures, Including non-US analyst disclosures. M. Morgan does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. wvolijpmorganmarkets.com EFTA00309574 Richard Vosser Europe Equity Research 28 Aprd 2014 Executive Summary IPMorgan CAZENOVE Going into ASCO where Roche will present new data for its PD-L1 in bladder cancer on May 31 we have examined the market potential of this cancer. While it is a relatively small market opportunity at only $0.8bn in PD-L I high patients, these data should serve to further highlight the immuno-onocolgy opportunity for Roche. Beyond bladder data at ASCO, PD-L I potential in other tumours and the data in combination with Avastin, if positive, have the potential to drive upside to PD-L I forecasts but also to remove concerns over the sustainability of the Avastin franchise (worth 17% of EmV). Although on the I Q'I4 call Roche seemed more cautious than previously around the Avastin combo opportunity. Beyond PD-L1, phase II ROMULUS data for the Anti-79b in NHL (Non-Hodgkin's lymphoma) also at ASCO (May 31) should provide another leg to Roche's existing growth and protection strategies for the Rituxan franchise (which currently include Gazyva replacing Rituxan; BCL-2 use on-top of Rituxan) and Kadcyla data in 1st line Breast Cancer from the MARIANNE trial in 2H14, which should cement growth for the HER 2 franchise. With these catalysts to come we reiterate our Ovenveight and Dec-14 SFr280 Price Target, offering 9% potential upside. Table 1: Roche Key Expected Newsflow in 2014 1H 2014 millu5 negative allostedc modulator (bastrnolurte_ .7Friffir millu2 negative allosteric modulator Idecoglwant) 1H 2014 Anti- Factor D lam • Phase Illsto2ressicitdecision in [Iv MID .7176f4- 1=41 Icina esI --- - These II data if Wail in naf. metastaticbreast cancer ancirtennat LP deciaon Phase II data (Mangold) in adjunct treatment of MDD (data expected in 142 2013 - UP decision in _11C0141 These II data (Artbeeo) it adjunct bealmentorfabb wis expelled to campleat-ar8in4) 1H 2014 apitobstb (EBkinase/eCft dual ithitiorj_ —_ Phase II dab VAGGIElin endomebial cancer andpotential LIP decision May 31 .S1 1 May 30 -Jun 3 BcI-2 intibex Anb-PDL1 (MPOL3280A1 Anti-79b Al2Cattzurnab vedotnl .SV Jun 3 Avastin May 30 Jun 3 Cobimetinib (MEK initiattc) "— Jun 21 -Jun 24 Oral °droner's MM. MM. Data in new tumor type (bladder cancer) at ASCO (analyst meeting on June 1) ROMULUS phase ii PBS data in NI.Lreiassectirerractot/FL 8213 line DLEICIldata at ASCO Phase I in CLL (combo with Rittman) and DLBCL H2H Avasbn vs celuximab in mCRC ICALGB 80405 stutil Phase lb (BRIM 7) data for Zeboraf Cobimetinb Phase III data in aaomegaly to be presented at BOO (June 21-24) 2 EFTA00309575