There's a saying that you'll hear used with perennially successful sports franchises – they don't rebuild, they reload. That could apply to Swiss drug giant Roche (OTC:RHHBY) as well, as the company appears to be well on its way with a second generation of top-end oncology drugs, supplemented with promising new drugs in CNS, metabolic disease, and other high-potential treatment areas. While Roche has questions to answer in its diagnostics and life science businesses, as well as its capital priorities, the business looks to be on solid footing for years to come.

First Quarter Results Highlight A Strong Franchise
Regrettably, Roche is quintessentially European with its earnings reports, giving investors minimal information on a quarterly basis. To that end, there was plenty of detail on the revenue performance (and ample clinical updates), but no margin data.

Revenue rose 5% for the quarter, beating the average estimate slightly. Growth was led by the drug business, where sales rose 6% and beat expectations by 3%. The company's impressive oncology franchise continues to drive the business, as Avastin and Herceptin grew 10% and Rituxan grew 6%, and the three combined contributed about 50% of the company's drug revenue.

The diagnostics and life sciences businesses were more disappointing. Diagnostics revenue was up just 1% overall, with a 5% decline in the diabetes business and a 10% decline in applied science offsetting 5% growth in the professional business.

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A New Class Of Oncology Drugs On The Way
Roche continues to demonstrate that company has the desire and the means of remaining a leader in the oncology space. Perjeta is off to a strong start and while it's much too soon to see a contribution from Kadcyla, doctor surveys have been positive and Roche announced a surprisingly high price for the drug ($9,800/month versus about $4,500 for Herceptin).

Looking ahead, abstracts for the ASCO 2013 meeting bode well for the company. Both GA101 and Roche's PD-L1 antibody look quite strong, and the PD-L1 compound could be a potential multi-billion dollar blockbuster. Although Bristol-Myers (NYSE:BMY) is about a year ahead of Roche and Merck (NYSE:MRK) is likewise ahead in development, the efficacy and side-effect profile for Roche's drug look quite encouraging (though at an extremely early stage). Moreover, it's worth noting that Roche already has a companion diagnostic test in place and this could help improve patient recruitment into later studies and speed the drug's path toward approval.

PD-1 and PD-L1 antibodies are likely to be one of the next big developments in oncology. These immuno-oncology compounds hold the promise of delivering solid efficacy with appealing side-effect profiles, and PD-1/PD-L1 is expressed in a large percentage of non-small cell lung cancer, colon cancer, melanoma, and renal cancer cases (and many others as well).

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Will Roche Spend To Strengthen Its Weak Points?
Roche is already strong in oncology, and could well become a strong player in CNS diseases like depression, schizophrenia, and multiple sclerosis in the next few years. The company also has drugs in development for cardiovascular disease and a high-risk/high-reward program in Alzheimers.

But Roche also has work to do. Roche's position in hepatitis C is relatively weak, and that may well be why the company is pushing to assert an ownership claim to Gilead's (Nasdaq:GILD) sofobuvir (PSI-7977) on the basis of a prior development agreement with Pharmasset and the claim that sofobuvir is a prodrug of '6130. Likewise, the company could arguably need more of a presence in areas like diabetes and vaccines, given the strong long-term global demand outlook.

Roche also has to do something with its diagnostics business. Management has discussed putting its glucose metering business up for sale, but the fierce competition from Johnson & Johnson (NYSE:JNJ) and Abbott (NYSE:ABT) and weak reimbursement environment will likely limit the value Roche can get. Likewise, Roche is finding its life sciences business eroding away rapidly and needs a transformative move to stay relevant (and readers may remember its attempts to acquire Illumina (Nasdaq:ILMN).

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The Bottom Line
With nine assets in phase 3 development and over a dozen late-stage trial results coming out this year, there will be plenty of data for investors to digest. At the same time, I think management could be ready to deploy more capital – whether it's to acquire Novartis's (NYSE:NVS) stake in the company, pay a special dividend, or acquire companies in either the drug, diagnostic, or life sciences areas.

All of that said, Roche is not so cheap anymore after a better than 50% run over the last year. If Roche can grow its free cash flow (FCF) at a long-term rate of around 5%, the stock is more or less fairly priced today. With so many other drug companies trading around fair value, I believe Roche's above-average growth profile and strong position in oncology and biologics puts in near the top of the list of Big Pharma companies that investors should consider today.

At the time of writing, Stephen D. Simpson owned shares of Roche.