Roche’s stock price has seen a significant increase of 10% in a week due to positive data from a phase one clinical trial of its experimental obesity drug CT-996. Patients who took the oral pill once a day lost 7.3% weight in a month, compared to 1.2% weight loss with patients who received a placebo. However, looking at a longer-term trend, Roche’s stock has declined by 10% from early January 2021 levels to around $40 now, compared to a 50% increase for the S&P 500 over the same period.
In the last three years, Roche’s stock has consistently underperformed the broader market, with returns of 18% in 2021, -24% in 2022, and -7% in 2023. In comparison, the S&P 500 returns were 27% in 2021, -19% in 2022, and 24% in 2023. Beating the S&P 500 has been challenging for individual stocks in recent years, even for heavyweights in the Health Care sector and megacap stars. However, the Trefis High Quality Portfolio, a collection of 30 stocks, has consistently outperformed the S&P 500 every year.
Roche’s revenue has declined by 7.2% from $72.4 billion in 2021 to $67.2 billion in 2023, mainly due to lower demand for its Covid-19 testing products. Excluding Covid-19 products, Roche has seen growth in its new drugs such as Perjeta, Kadcyla, Alecensa, Tecentriq, and others. The sales of previously top-selling drugs Avastin, Herceptin, and Rituxan have declined significantly, impacting overall revenue.
Despite some failures in its cancer and Alzheimer’s disease treatments in its pipeline, Roche has made a strategic move by acquiring Carmot Therapeutics for $3.1 billion, gaining access to experimental obesity treatments. The obesity drugs market is expected to grow to over $100 billion by the end of the decade, and Roche’s entry could give it a significant share given its options of an oral pill and an injectable. Positive results from ongoing clinical trials, especially in the obesity drug segment, could drive the stock price higher.
In conclusion, Roche is considered to be appropriately priced from a valuation perspective. Any positive outcomes from its ongoing clinical trials, particularly with its obesity drugs, are likely to result in further increases in the stock price. With a focus on new drugs and potential market expansion into the obesity segment, Roche could see a turnaround from its recent underperformance in the market. Investors are advised to keep a close watch on the company’s clinical trial results and market performance in the coming months.
