Roche's participation certificates are actually known as a "rock of stability", offering stability even in times of crisis. However, the pharmaceutical stock did not live up to its reputation last year. The Group lost almost one-fifth of its market value, more than the market as a whole. And in the new year 2023, the shares are also down by around 3%, while the SMI has gained.
A major reason for the current underperformance is likely to be found in the recently weakening operating performance. After years of good business with its Covid 19 products, Roche started to show signs of slowing down in 2022. Although currency-adjusted sales increased slightly by 2% to CHF 63.28 billion, the bottom line was already 9% lower at CHF 13.53 billion. On the earnings side, the Group also missed analysts' expectations. Nevertheless, Roche had a small consolation for its shareholders: the dividend will be raised for the 36th time in a row. However, the outlook for 2023 made investors uneasy, as the pharmaceutical and diagnostics giant is preparing for a decline in revenues and profits due to further declining sales of Corona products. Adjusted for currency effects, sales are expected to shrink by a low single-digit percentage and earnings per participation certificate adjusted for special items are expected to decline in line with this.
Adjusted for the Covid 19 funds, however, things look better for Roche. "For the current year, we expect solid underlying growth in both divisions," CEO Severin Schwan said optimistically when presenting the figures at the beginning of February. And this even against the backdrop that generic drugs for key sales drivers will reduce revenues by around CHF 1.6 billion. To get back on the growth track, Roche is investing tens of billions of euros annually in research. A total of around 160 drugs are currently in the pipeline, 48 of which are in late clinical phase III alone. One of Roche's major hobbyhorses in the pharmaceuticals sector, which accounts for almost three quarters of Group sales, is oncology. In fact, the company is the world market leader in this field.
One blockbuster drug is "Tecentriq," which belongs to the first generation of innovative cancer immunotherapies. Immunotherapies have great potential: Verified Market Research estimates the global immunotherapy market for cancer to be worth USD 306 billion by 2030, which would correspond to an average annual growth rate of 13.7%. Roche wants a slice of this gigantic pie and is currently researching more than 50 combination therapies that target different parts of the cancer immune cell cycle. Most recently, the company celebrated another success: the "cocktail" of the drugs "Tecentriq" and "Avastin" showed efficacy in a late-stage Phase III trial in a specific form of liver cancer, thus achieving its main goal.
Teresa Graham, who previously headed the Global Product Strategy unit of the Pharmaceuticals business, is now responsible for the continued success of the Pharmaceuticals Division. Her predecessor Bill Anderson left the company at the end of the year and is now under contract to competitor Bayer. But this is not the only personnel change at Roche. After 15 years at the helm, Group CEO Severin Schwan will hand over the reigns in March to Thomas Schinecker, who currently still heads Roche's second mainstay, the Diagnostics Division.
The decline in the price of Roche participation certificates recently caused the price targets to move south as well. In addition, the consensus rating was reduced from "buy" to "hold". However, the 12-month price target of CHF 335 is still 19% above the current level. For investors, the question now is: bet on rising or falling prices?
Leonteq has the right answer with the Twin-Win Autocall Certificate. The function of the product allows positive returns on both price gains and losses. If Roche rises above the starting level, the certificate profits 100% - and indefinitely. If, on the other hand, the non-voting equity securities go into reverse, the product converts the falling prices into positive returns up to a certain limit. Consequently, investors can profit from both directions. The new Twin-Win Certificate also includes an autocallable function. Every semester, an observation day takes place which decides on an early redemption. If, for example, the Roche share price is already quoted at least at the autocall trigger level, which is at the start level at 100%, on the first observation date, the product will mature immediately. In addition to a possible positive performance, holders of the certificate can then also look forward to a coupon of 4% (8% p.a.). In the event that there is no early maturity, the attractive coupon payments are not lost. On the contrary, they are added up. If Roche is quoted above the starting level at the final fixing in one and a half years, holders of the Twin-Win Certificate will receive all memory coupons - regardless of whether a barrier event has occurred. Thus, the coupon opportunity at maturity amounts to 12%.
In addition, there is the positive performance of the underlying asset, in which the certificate participates 1:1. Falling prices can also result in a positive return on the nominal. In order for price losses on the underlying to be converted into gains on the certificate, the barrier level fixed at 80% of the starting value must not be touched. If Roche breaches the barrier, the twin-win mechanism is deactivated. At maturity, the certificate would then yield a loss corresponding to the minus of the underlying. To escape losses in the event of a barrier breach, Roche would have to at least recover to the initial level by expiration. In the event of a barrier breach, the risk profile would therefore be comparable to a direct investment in the underlying.
We look forward to answering all of your questions about our products and how they are traded. Please don't hesitate to get in touch! Phone: 058 800 11 11, email info@leonteq.com or contact us here.