Roche: Obesity Data Updates Support a Competitive Profile; Shares Undervalued

We’re maintaining our CHF 379/$55 per share fair value estimate for Roche’s nonvoting shares and ADRs following recent positive updates from its obesity pipeline programs, which were acquired earlier this year as part of the $2.7 billion Carmot Therapeutics acquisition. We have more detailed efficacy data from two obesity programs that look competitive with drugs from leading firms Novo Nordisk and Eli Lilly, as well as other challengers that are approaching the market. Even assuming that Novo and Lilly continue to dominate the market for the foreseeable future, our estimate of a potential $100 billion global obesity market (and $200 billion total global GLP-1 market, including diabetes and overweight) leaves plenty of room for Roche’s programs to gain traction. We’re particularly intrigued by its oral, small-molecule program, which may not be hampered by supply issues that plague more-complex difficult-to-manufacture molecules (including Novo’s Wegovy and Lilly’s Zepbound). We think Roche’s drug portfolio and pipeline and leading diagnostics business continue to support a wide moat, with novel programs like these midstage obesity drug candidates adding support to its intangible assets.