Roche Holding AG ADR RHHBY

Roche: Obesity Pipeline Data Details Support Our Valuation and Leave Door Open for Differentiation

We’re maintaining our CHF 379/$55 fair value estimate for Roche’s nonvoting shares and ADRs following further details surrounding phase 1 data for obesity pipeline programs acquired earlier this year as part of the $2.7 billion Carmot Therapeutics acquisition. Now in a phase 2 study, we think weekly injectable GLP-1/GIP CT-388—which generated 18.8% placebo-adjusted weight loss at the highest dose in phase 1—could enter phase 3 as early as 2025, making a 2028 launch possible. We think daily oral GLP-1 CT-996—which led to 6.1% placebo-adjusted weight loss after just four weeks of treatment—is poised to enter phase 2 in 2025 and could launch as a differentiated oral by 2029. We continue to include a combined CHF 5.3 billion in probability-adjusted sales for Roche by 2033 in obesity. We think investor concerns on tolerability of Roche’s obesity molecules (high rates of mild nausea and vomiting in both studies) are misplaced. Roche’s phase 1 studies were meant to stress test the safety profile of these molecules to ensure they warranted expensive, late-stage clinical studies, and data was in-line with other drugs in this class at this stage of development. We think Roche’s drug portfolio and pipeline and leading diagnostics business continue to support a wide moat, with novel programs like these mid-stage obesity drug candidates adding support to its intangible assets. Given our estimate that the global obesity drug market could reach $100 billion by 2031, we see upside to our estimates if Roche can differentiate on at least one of multiple levels. We think 996’s once-daily oral profile and ease of manufacturing as a small molecule are the likeliest differentiators.