Roche: the end of sluggish growth is in sight
As the exceptional boom created by the coronavirus pandemic came to an end, the pharma giant experienced a major slowdown — both in its financial statements and on the stock market. Yet the Group’s current moderate positioning could justify a closer look at its non-voting equity securities. Intrepid investors will find the right solutions on Swiss DOTS, Switzerland’s leading OTC marketplace for leveraged securities.
The last few months have been something of a non-event for Roche on the stock market. While the SMI heavyweight still managed to record an impressive gain of 22% in 2021, its non-voting equity securities lost almost a quarter of their value in the following year. 2023 appears to be another case of “one step forward, two steps back”, with Roche shares so far unable to track the positive overall trend in the market and remaining firmly in the red despite the share price’s recent upward movement.
A clear backwards step…
But let’s not get ahead of ourselves. the recent lack of enthusiasm among investors has also been accompanied by weak operating performance. While Roche’s COVID-19 products kept cash registers ringing during the peak of coronavirus, the end of the pandemic weighed heavily on its financial statements. Although the Group still managed a modest currency-adjusted increase in revenue of 2% during the past financial year, its profits slumped by 9%. The new year got off to a similarly bumpy start, with revenue falling by 3% to CHF 15.32 billion. Earnings figures will only be published at the half-year mark.
…but a closer look reveals signs of progress
Nevertheless, this drop in revenue only seems alarming at first glance. Closer analysis of the latest interim figures shows that there are also plenty of reasons to be cheerful. Firstly, the decline has not been half as severe as analysts feared. What’s more, if you strip out the Group’s coronavirus products, revenues in both the pharmaceuticals and diagnostics businesses have risen significantly. The Group’s new eye drug Vabysmo is one of the main reasons for this improvement. Introduced to the market roughly a year ago, this retinal disease treatment has generated an impressive CHF 432 million in revenue, making it the Group’s strongest growth driver and exceeding the average revenue estimate by more than CHF 100 million. “We are very happy with the rapid and significant uptake in various markets around the world,” said CEO Thomas Schinecker, who took over from long-serving Roche boss Severin Schwan in March. The Group is also seeing significant demand for multiple sclerosis drug Ocrevus, blood medication Hemlibra, muscular atrophy medicine Evrysdi, and cancer immunotherapy treatment Tecentriq, all of which ultimately helped sales in the pharmaceutical division to increase by 9% between January and March. Summarising this trend, Terence McManus, portfolio manager at Bellevue Asset Management, said:
“Some of the important growth products are beating expectations.”
Promising products in the pipeline
Even though Roche is still feeling the effects of the end of the exceptional boom associated with coronavirus and is expected to record a low single-digit percentage decline in sales and falling profits in 2023, this slowdown in growth is almost over, with new products in the pharmaceutical segment set to make a particularly significant contribution. The Group has placed 19 drugs in the market in the last eight years alone, and its pipeline is still full to bursting. At least one third of its current crop of more than 150 treatments are already in Phase III clinical trials. Oncology products are the highlight of the pipeline, with Roche currently conducting research into 80 cancer drugs and 17 pure immunotherapies. The Group’s new tumour therapy in the latter category has been dubbed a “revolution in cancer medicine” within the industry. This offers incredible market potential, with Verified Market Research expecting the global cancer immunotherapy market to grow from USD 83.7 billion in 2021 to USD 306 billion in 2030, equivalent to average annual growth of 13.7% p.a.
Yet oncology is not the only area where Roche is investing heavily. Other areas such as multiple sclerosis, a condition of the nervous system, are also among its key projects. Indeed, the Group recently announced another research breakthrough in this area as a Phase III trial of its new drug Fenebrutinib showed significantly reduced brain lesions in people with relapsing MS.
Overall, CEO Schinecker is keen to place at least three new treatments in the market this year. The diagnostics business headed up by the 48-year-old molecular biologist before his promotion to the boardroom is also working assiduously to find new solutions. One particularly promising project currently being trialled is a blood test for the early diagnosis of Alzheimer’s developed with US pharmaceutical company Eli Lilly. The data gathered from this trial could be sufficient for Roche to file for regulatory approval in the USA as early as 2025.
A rebound is on the cards
This operating success could soon be followed by a comeback on the stock market. A support zone around CHF 260 dating back to 2019 brought months of share price losses to a halt before a counter-reaction took Roche back above its 100-day average. The next intermediate target is the area around CHF 300, where both horizontal resistance and the 200-day moving average can be found. Only a sustained breakout will bring the annual high of CHF 335.85 back into view.
Why this investment is worthwhile
Bold investors are exploiting the current momentum to venture a long trade. Swiss DOTS offers a total of 656 leverage products on this SMI heavyweight, almost two-thirds of which are geared towards upward speculation. One suitable product is the call warrant (Valor 120945066) from BNP Paribas. With a strike just short of the annual high at CHF 330 and leverage of 14.6, it is ideal for backing the stock to climb back towards its previous peak. Its term ends in mid-December.
The mini-long (Valor 118848952) even makes an endless investment possible. This open-ended instrument has leverage of almost 7 and a stop-loss of CHF 249.777268, allowing just under 13% to the underlying on the lower side. If Roche’s non-voting equity securities falter in their comeback, the knock-out warrant put (Valor 117498218), with weaker leverage of 3.4 and a knock-out at CHF 356.64, would be the most appropriate product. However, a note of caution: there is a risk of total loss if a knock-out event occurs for one of the above products.
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