Roche Pharmaceuticals (OTC: RHHBY) is one of the largest pharmaceutical companies in the world by revenue. The company, based in Basel, Switzerland, has three main biologic therapies -- cancer therapies Avastin and Herceptin, and arthritis and cancer treatment Rituxan/MabThera. Roche is also the manufacturer of Tamiflu, one of the only available treatments for aggressive strains of influenza. In FY 2010, Roche generated revenues of CHF 47.5B and net earnings of CHF 8.9B.
Rituxan, a drug for arthritis and cancer, retains patent exclusivity through 2015, while Avastin and Herceptin, both cancer therapies, retain patent exclusivity through 2019.  Such patent exclusivity gives Roche one of the youngest and most profitable product portfolios in the pharmaceutical industry.
In January 2010, the FDA approved Roche's antibody drug, Actemra, to treat rheumatoid arthritis. The drug, which was originally developed by Roche subsidiary, Genentech, is already approved in Europe and Asia and is expected to reach blockbuster status (more than $1B USD in annual sales). Actemra is a first-in-class drug that directly inhibits the interleukin-6 receptor, which is known to be involved in the symptoms of arthritis. The drug is administered intravenously every 4 weeks to patients.
In March, 2009, the company completed a $46.8 billion buyout of the remainder of outstanding shares of US biotech company Genentech (of which it already owned a majority stake).  The company also holds a majority stake in Chugai Pharmaceuticals (4519-TO) of Japan.
The company has two divisions: Pharmaceutical and Diagnostics. The company is the world's largest cancer drug manufacturer with additional drugs for various indications such as macular degeneration, antivirals, and a large vaccine unit. In FY 2010, Roche generated revenues of CHF 47.5B and net earnings of CHF 8.9B.
The following drugs all generated at least CHF 1 billion in sales in 2010.
Roche is a provider of diagnostics products (products for testing and treating medical conditions) in addition to its pharmaceutical products. The division has five units: Professional Diagnostics, Applied Science, Tissue Diagnostics, Diabetes Care, and Molecular Diagnostics. Professional Diagnostics is the largest unit, accounting for nearly half of the division's sales, followed by Diabetes Care and Molecular Diagnostics.
The vast majority of the company's research and development spending was concentrated in pharmaceuticals. Developing a new drug is a time-consuming and costly endeavor. Hundreds of thousands of candidate compounds must be screened to identify a handful of potential drugs, and even fewer of these candidate drugs are found to be effective at treating a disease. The drug must then pass strict safety standards in several series of clinical trials. The entire process of developing a new drug and bringing it to the market takes up to 10 to 15 years and on average costs $800 million.
Most of Roche's product pipeline focuses on continuing the development of already certified successful drugs like Avastin. It has many clinical trials combining its approved drugs with other compounds or using its cancer drugs for different cancer treatment applications. Success with these trials would extend the scope and duration of the drugs' patents, bringing in billions more in revenue.
Due to Food and Drug Administration (FDA) regulations, pharmaceutical patents last 17 years, during which a pharmaceutical company has an exclusive right to manufacture a particular drug. After the patent expires, generic versions of the product can be produced and sold by competitors. Generic medication is cheaper to produce (due to the substantially lower research and development costs) than brand medication, and the lower cost is often a strong incentive for consumers to choose generics over branded drugs. In addition, the presence of a generic alternative may force a decrease in the brand name medication's price, through increased competition. Roche's business model is highly dependent on patent protection and the enforcement of intellectual property rights, and weak patent protection decreases the profitability of drugs. Major pharmaceutical companies are constantly threatened by the entrance of generics.
Roche, however, has one of the youngest pipelines in the industry. Its biggest drugs - MabThera/Rituxan, Avastin, and Herceptin - accounted for large portion of annual revenues and have patent protection through 2015, 2019, and 2019, respectively. The only major drug for which the company is losing revenue due to pricing pressure (both from branded competition and generics) is the anemia drug NeoRecormon/Epogin.
There is always a threat of a regional or even global outbreak of a major influenza virus. For example, the Spanish influenza pandemic of 1918 infected 500 million people and killed 10% of victims. More recently, the Avian flu of the early 2000s killed at least 200 people around the world, particularly in Southeast Asia. The Swine flu scare of April 2009 similarly threatened countries all over the world, and the possibility that a future swine flu variant could turn into a major flu pandemic is a serious concern. Public health officials all over the world have stocked up on vaccines and treatments in the event of such an outbreak. Roche's Tamiflu is one of two approved influenza treatments for aggressive influenza strains.. A similar increase was initially expected in 2010, but when there were fewer H1N1 cases than expected, many countries cancelled or downsized their orders. A sustained period of calm can result in decreased demand for Tamiflu and hurt Roche's bottom line, but renewed fear of outbreak (such as the Swine flu scare) can be a significant boon to earnings.
Beginning in 2009, the FDA implemented a series of reforms that include stricter monitoring of drug adverse events, more funding for the agency, stronger ability to force product recalls, more scientific expertise within the agency, more transparency. While the tightened regulations and increased transparency will eventually improve the overall quality of pharmaceutical products, companies will have to adjust to the stricter standards and stronger enforcement.
Competitors to Roche's major drugs include:
Roche's biggest competitors include Pfizer (PFE), Merck (MRK), GlaxoSmithKline (GSK), Novartis AG (NVS), Eli Lilly and Company (LLY), Bristol-Myers Squibb Company (BMY), Sanofi-Aventis SA (SNY), and Gilead Sciences (GILD).
Competition in the pharmaceutical industry lies mostly in specific drug markets. For example, a new diabetes drug is not going to have any effect on an existing cholesterol drug, no matter how successful it is. As a result, financial data on the pharmaceutical companies do not tell the whole story. Instead, it may be more appropriate to analyze Roche's competitors by each drug market (See section on Major Drugs and Industry Trends).