Investing advice: Healthcare overhaul raises a question about Roche Holding
Question: I have heard many good things about Roche Holding. Is it a good investment in light of the new healthcare law?
Answer: This Swiss pharmaceutical firm has lost some investment luster.
The company has an array of cancer-fighting biotechnology drugs, but its once-robust sales growth has been slowing, the threat of cheaper generic drugs is growing, and the company has suffered setbacks in drug development.
To improve its outlook, the company is turning to cost-cutting, with staff reductions expected in a number of markets. But its staffing in China is expected to increase, and the company said its research and development efforts will remain intact.
Roche’s U.S.-traded shares are down 13% so far this year after losing 10% last year. Its sales declined in the third quarter because of a drop in demand for flu drugs, downward pressure on pharmaceutical prices and strengthening of the Swiss franc.
The question for investors is whether the firm can regain its form despite the recently enacted U.S. healthcare reform as well as austerity programs adopted by governments around the globe.
After acquiring cancer diagnostics firm Ventana Medical Systems in 2008 and biotech pioneer Genentech Inc. of South San Francisco, Calif., last year, Roche remains under pressure to keep pace with a consolidating healthcare industry by acquiring more small and midsize firms.
Biotechnology represents two-thirds of Roche’s drug product line, and the company retains a stable of strong patents. Its diagnostics operations are solid.
One concern: The Food and Drug Administration said the company failed to prove a benefit to administering its popular drug Avastin beyond the currently approved treatments of colon, lung and certain other cancers.
Wall Street analyst ratings on Roche shares consist of two “strong buys,” one “buy” and two “holds.”
Analysts on average expect Roche’s profit to increase 55% this year and 9% next year, compared with 52% and 13% respectively for the overall healthcare industry, according to recent estimates by Thomson Reuters.
• Fund manager makes contrarian picks
Question: Is Dreyfus Opportunistic Small Cap as good as its numbers indicate, and will this last?
Answer: This mutual fund has performed admirably since David Daglio took charge in 2005. Just don’t toss all of your money into it: Like most small-cap funds, its performance can be volatile.
The $620-million fund gave its investors a total return of 32% in the last 12 months, putting it in the top 6% of small-cap growth and value funds. Its three-year return of 10% and five-year return of 9%, both annualized, put it in the top 1% of its category.
Daglio often makes contrarian picks and has the patience to stick with his choices. The 95-stock portfolio has 10% or more of its value in each of these sectors: industrial materials, software, healthcare, financial services, consumer services and consumer goods.
The fund has an annual expense ratio of 1.37% and a $2,500 minimum initial investment. There is no sales charge on share purchases.
Andrew Leckey answers questions only through the column. Write to him at yourmoney@tribune.com.
