Stock exchanges are in party mood, with equity markets around the world having been on a record run for some considerable time already. Speculation about interest rate cuts, the boom in AI and growth fantasies are causing all share prices to rise. All – really? No: in fact, a closer look at the SMI reveals that seven stocks – more than a third of the index components – are in negative territory when seen over one year, despite the positive performance overall. Roche brings up the rear with a drop of 18%. Another index heavyweight, Nestlé, also posted double-digit percentage losses over the same period. For second-line stocks, too, not every price curve is pointing firmly north: shares in Stadler Rail, for instance, have lost a fifth of their market capitalisation over the last twelve months.
For Roche, however, it is not just the last few weeks that have landed the pharmaceuticals group in trouble. Indeed, its participation certificates have been on the slide for almost exactly two years now. The price of the share has been easing downwards since the all-time high reached on 15 April 2022, losing almost half of its former market value.
This weakness was one of the subjects raised at the most recent general meeting, when the somewhat more than 600 people in attendance listened attentively to the explanations given by CEO Thomas Schinecker and chairman Severin Schwan. "We are not satisfied with the share price performance," said Roche boss Schinecker, echoing the thoughts of all those present at the Congress Center in Basel. Chairman Schwan then set out the possible reasons behind this. These included, firstly, the "abrupt end" to the coronavirus pandemic, which had benefited Roche disproportionately. Secondly, there had also been setbacks in the development of drugs.
One of the reasons putting investors in a bad mood was the failure of the great hope, "Gantenerumab". The eagerly awaited phase III study of the Alzheimer antibody last year fell short of its targets, pulverising the prospect of billions of euros in revenue. According to CEO Schinecker, though, the group has great hopes for products in the current pipeline. These include "Vabysmo", for instance. Brought onto the market at the start of 2022, the ophthalmology drug is now one of the group's best-selling products, bringing in annual revenue of more than CHFbn 2. Other potential growth drivers include "Hemlibra" for haemophilia and "Ocrevus" for multiple sclerosis. The Basel company also jumped on board the booming obesity drug train with the recent acquisition of Carmot Therapeutics. Last but not least, Roche could even play the Alzheimer's card again following the discontinuation of Gantenerumab. Highly promising results from the study of the Alzheimer's drug "Trontinemab" were recently presented at a conference, for instance.
To keep the development pipeline on track, CEO Schinecker will not only focus on Roche's own research and the development of novel active ingredients going forward, but also continue to look for good deals. One way or another, however, the group is in line to return to growth this year. The pharmaceutical and diagnostics manufacturer expects to see a rise in sales and earnings for the current year. Analysts also have high hopes for Roche: the consensus for 2024 is an increase of a good quarter in earnings per share, while profits are set to improve by a further 8% in the year ahead. In light of these prospects, the 2025 PER of around eleven does not appear particularly ambitious – probably one of the reasons why the research firms recently raised their average estimates again somewhat. While the consensus verdict is still to "hold", at CHF 277.50 the average 12-month target is well above the current level.
Source: Refinitiv, e = expected