‘We are a flagman for what’s happening’: Roche on being a bellwether in a pandemic
‘So far, we have mostly been right,’ says Karl Mahler, head of IR at Roche, on the pharma giant’s internal simulations looking at everything from how long a particular wave of Covid-19 will last to whether and when there will be another wave of the pandemic.
Of course, we all want to know how things are going to pan out but these simulations are essential in order for the Basel-headquartered firm to plan for the future and determine how much testing –for Covid-19 and anything else – will be required. Off the back of high demand for Covid-19 testing as well as ‘strong momentum’ in routine testing, Roche saw its diagnostic division sales grow 51 percent in half-year results announced last week. Until recently, however, this forgotten child of the $300 bn+ market cap company was largely ignored, says Mahler.
Roche has the largest in-vitro diagnostics company in the world, Mahler tells IR Magazine, pointing out the difference between what it does – taking tissue out of the body for analysis – and what a firm like Siemens, for example, does, which is look into the body using MRI machines or CT scans.
Through diagnostics, Mahler says, ‘we know first what is going to happen to the healthcare system, in a certain sense. We see how many patients are going back to hospital [as restrictions or waves ease], we see whether screening is being done for breast cancer, or if people are having blood taken for analysis.’ These are all areas that saw significant drops as a result of the Covid-19 pandemic – so an increase in routine diagnostics also indicates a return to some level of normality.
‘We are something of a flagman for what’s happening in the healthcare system,’ says Mahler. ‘If the whole system is going down, we see it first. If the whole system is going up, we also see it first, in terms of diagnosis.’
Has that resulted in greater interest in the company? ‘Do we have more people joining our calls? Do we see an increased interest? Yes,’ Mahler adds. ‘For the half-year call [last week] we had around 700-800 people on the call, which is a lot. It’s a really massive number.’
In the past, that would have been more like 400-500 attendees, he notes, though he questions whether the increase is down to Covid-19 or because of other developments. What he does say, however, is that ‘people are asking us more often for our take on the overall healthcare system.’
Inside the vaccine response
Roche has a number of ways it can gather insights that help paint a picture of how the pandemic – and life and the market – might play out in the future. As well as diagnostics – both Covid-19 testing and testing for cancer or other diseases, which drops off significantly during lockdowns – the company is conducting research into the longevity of Covid-19 vaccines.
Roche is doing analysis on how well the vaccines work against certain strains, measuring both the outside of the antibody – the spikes – and the inner part (the encapsulation), he explains. ‘If you want to know whether the immune system works, you have to measure the inner part,’ he says. ‘If you want to know how well the vaccine works, you have to measure the outer part. We are the only company that measures both the inside and the outside.’
The result is ‘some things we can talk about, some things we can partially talk about and some we can’t because we are doing the study on behalf of someone else so it isn’t actually our data,’ Mahler says. But this certainly gives Roche ‘a very good overview of what is going on.’
The middle child
Pre-Covid-19, Mahler says the company’s diagnostics arm didn’t spark much interest in analysts and investors. ‘Don’t ask me why,’ he says. ‘It’s like a family where you have several kids so one always gets less attention. Everybody was always looking at pharmaceuticals, higher profits, higher margins. That has really changed. The perspective of investors on diagnostics has shifted so much because they see that actually, diagnostics is a way of bringing us back to a new normal.’
This has also been the result of an acceptance that Covid-19 is likely to stick around, he adds: ‘There are issues with vaccines. You need maybe 85 percent vaccination to get herd immunity and that is not likely, to say the least. And then you have the fact that vaccines work differently – some better, some worse – on different strains, adding to the herd immunity issue. Then you have medication, which is also not there yet.’
Roche actually developed the antibody treatment used by Donald Trump when he was hospitalized with Covid-19, but Mahler says there is resistance to the treatment ‘despite the fact it works’, while the company has also found it can’t produce as much of the antibody treatment as it had expected. Just this month, Roche announced that Japan became the first country to approve Ronapreve (casirivimab/ imdevimab), with global phase III trial results showing the treatment reduced hospitalization or death by 70 percent in high-risk, non-hospitalized patients.
Regardless, all the current options have limitations, says Mahler and, as Covid-19 is ‘not going away for the foreseeable future’, investors increasingly recognize that you need diagnostics. The middle child of Roche has matured. ‘Now diagnostics is grown up, and it has much better margins,’ he says.
A dedicated diagnostics day
Interest in the company’s diagnostics has grown so much that in March, the IR team held its first ever diagnostics investor day. ‘It was super well attended,’ Mahler recalls, adding that diagnostics now makes it into all the company’s presentations.
Talking more about the day itself, Mahler says the IR team took advantage of a new tool that had been used internally – by the diagnostics department, in fact: he notes that ‘we wouldn’t have had the money to program that in the IR department’ – allowing the company to present in a completely different format.
The diagnostics investor day, still available on Roche’s website, offered a virtual, 360-degree experience. ‘We basically built a kind of town hall: you could walk up the stairs, where there was an artificial person asking you where you want to go,’ says Mahler. ‘There was the main practice room or you could go to breakout rooms. You could even pick up a megaphone and say, Hello, I want to talk to all of you.’
Covid-19 has changed the way everyone – not just investors and analysts – thinks about diagnostics. ‘Everybody knows what a PCR test is now,’ says Mahler. ‘And we have really changed the way we talk about diagnostics, too.’