Investors on Swiss Company Roche Remain Cautious Despite Overall Business Improvement

By Reina Ilagan

Dec 07, 2016 05:04 AM EST

Swiss pharmaceutical giant Roche experienced an overall business improvement after its launch of new products and the growth of its drug franchise. However, the company's stocks fell as investors remained cautious on broader industry factors.

As reported by Forbes, the company did not implement any major changes in its strategy at it remains as a research-focused firm. The company's capital was deployed primarily towards the development and acceleration of the drug pipeline.

However, the company stands to lose the most because of its focus on biologics.

The company also experienced close to 6% growth in the first nine months of 2016. In the same period last year, the company's revenue grew only by 1.5%. Such growth this year was driven by both pharma and diagnostics businesses, although the latter constitutes only 16% of the company's gross profits.

Despite the growth in Roche's revenue, the market cap fell nearly 20% this year, which suggests that the market had already priced in the expected drug launches, but capitulated to macro pressure and concerns over drug pricing and biosimilar competitions.

There is a similarity in Roche's stock trajectory and S&P pharmaceutical index, as both show a downward graph of more than 20%. This reflects the investors' concern about the overall sector.

The drop in stocks early in the year may be attributed to concerns over China's economic growth. The gradual decline, however, continued to the latter months partially due to the passing of tax inversion related lows. Such law reduced the incentive for M&A deals, therefore limiting growth opportunities.

There is also a growing concern over Roche's future as approvals of biosimilars have increased. Another possible reason for the decline in stock is the concern over drug pricing and its relevance to the recently concluded presidential elections.

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