Demand for Roche’s COVID-19 Tests Exceeding Capacity; 5-Star Analyst Says ‘Buy’


As the worldwide coronavirus case count has risen towards 1 million, and as several people who have no known ties to existing cases have started to chart symptoms, the need for a reliable, mass-produced diagnostic test has become pressing.

On March 12, Roche (RHHBY) received approval for its SARS-CoV2 test (PCR) that runs on the COBAS platform. The test has a fast turn-around time of 3.5h but there is limited supply. At the moment Roche can supply 3.5 million tests per month.

Indeed, following a virtual meet up, Deutsche Bank’s Richard Parkes argues disruption to Roche’s routine diagnostic sales are offset by strong demand for COVID-19 tests. The demand for kits has exceeded capacity, with Roche able to produce 900,000 tests per week. Without providing specific pricing details, the company has confirmed that it is distributing its COVID-19 test at a price “modestly below its standard assay pricing structure.”

Accordingly, the 5-star analyst reiterated a Buy on Roche, along with a CHF 350 price target, which implies about 10% upside from current levels. (To watch Parkes’ track record, click here)

“We believe this could represent a monthly revenue opportunity of ~$100m-200m, equal to 2-3% of Group sales on an annualized basis,” Parkes said.

The development of a serology test to identify previously exposed infections with ongoing immunity is also currently in accelerated mode, but there is no timeline attached. Roche has warned that due to the “implications for informing healthcare policy” and allowing individuals to forego social distancing measures, the accuracy of such a test was vital.

While the rest of its pipeline hasn’t seen any meaningful delays, there are other coronavirus developments taking place. A Phase III trial is due to start early this month of Actemra in severely ill COVID-19 patients, with results hopefully available by May or June. Roche have been reluctant to be drawn on the commercial opportunity, due to, so far, there is only anecdotal evidence the treatment will succeed.

“In theory, we believe the sales opportunity could reach $1bn or more. However, this remains highly dependent on how the pandemic develops over time,” Parkes added.

In contrast to the many companies struggling in the current climate, Roche remain aware of the current situation’s ability to further enhance its reputation, as Parkes concluded, “Roche also see potential for its highly visible presence during the COVID-19 pandemic to help improve brand awareness and thus its penetration of the US diagnostics market in the long-term. (See TipRanks’ Analysts’ Top Stocks)

 

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