Roche is in purgatory

7th May 2018
-News, IAM

Jean-Louis Richard, Senior Financial Analyst

On April 26th, Roche published better than expected sales revenues and has increased its forecasts for the full year. In such circumstances the share price generally rises. This was this time not the case: the share (or more precisely the participation certificate, without voting rights) of Roche remained flat in a well oriented market.

This reaction shows the mistrust around the company from Basel. Its stock exchange price is at the same level as in March 2013. In these 5 years, the results have only progressed slightly, as sales and earnings (EBITDA) have only grown by 15% and 8%. This is part of the explanation: Roche reaches the end of an extraordinary growth period, which started in the years 2000 thanks to the three anti-cancer treatments (Avastin, Rituxan, and Herceptin) of its American subsidiary Genentech. It is not sure that the new generation of products will allow the group to defend its positions. But the mistrust goes further than this uncertainty.

The management of Roche indeed assures that earnings will continue to grow, investors simply refuse to listen. First, because nobody, including the management, can predict success or failure of medications in development; then the market has already been disappointed by too much optimism of Roche. Last year the company announced the success in a new breast cancer treatment (combination of Herceptin, Perjeta and chemotherapy) before having 6 months later to concede that the progress of this new treatment was only moderate…

Roche therefore finds itself in purgatory. Promises are not enough any longer to revive the share price, the market waits for concreate results before giving credit back to the company.

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