[Updated: Nov 12, 2021] Roche Update
Roche’s ADR (OTMKTS:RHHBY) reported its Q3 results last month with the top-line expanding 8% y-o-y, led by a 29% growth in new pharmaceuticals products, 18% growth in diagnostics, and 5% growth in other pharmaceuticals. The diagnostics business revenue was higher due to the spread of the Covid-19 Delta variant resulting in continued demand for Covid-19 testing. Roche’s Rheumatoid Arthritis therapy – Actemra – is seeing a strong uptick in demand following an FDA emergency use authorization nod for hospitalized Covid-19 patients in Q2 this year. Actemra sales were up 30% to CHF2.7 billion for the nine-months period ending September 2021. Roche expects Covid-19 business to remain strong in Q4 as well.
On the pharmaceuticals side, the new products continue to offset the impact of biosimilars on older drugs, including Herceptin, Avastin and Rituxan. In fact, new products now account for over 50% of the company’s total pharmaceuticals sales. Among the new products, Roche’s hemophilia A drug – Hemlibra – is seeing strong market share gains with its total sales surging 42% to CHF2.2 billion for the nine-months period ending September 2021. Roche’s lung cancer treatment – Tecentriq – is also seeing strong growth with revenue up 27% to CHF2.5 billion over the same period.
There are multiple other new products, including Ocrevus, Alecensa, and Kadcyla, driving the overall pharmaceuticals sales growth, a trend expected to continue going forward. Although Ocrevus sales growth slowed in Q3, it can be attributed to multiple sclerosis patients delaying treatments in anticipation of Covid-19 booster shots. Our Roche Revenues dashboard provides more insight on the company’s revenues.
RHHBY stock is up 4% over the last month to levels of $50 currently, very close to its 52-week high of $51. What has fueled its stock price growth other than good quarterly performance is Novartis’ decision to exit its stake in Roche for $20.7 billion. Roche buying Novartis’s stake will be EPS accretive, and it will allow Roche more flexibility, given that Novartis is its direct competitor. Roche will cancel the repurchased shares, resulting in a rise in public float to 24.9% from 16.6% currently, meeting the benchmarks required for it to be included in indices, including Swiss Performance Index (SPI). The transaction will be debt-financed. 
Despite the recent rise in RHHBY stock, we believe that is more room for growth. Going by our Roche Valuation of $56, based on expected earnings of $2.67 on a per share and adjusted basis, and a P/E multiple of 21x, RHHBY can see potential upside of around 12% from its current levels of $50.
[Updated: Sep 10, 2021] RHHBY Stock Decline
The stock price of Roche Holding’s ADR (OTMKTS:RHHBY) reached its all-time high of $51 in August, before a recent sell-off in the stock, which led to a 3% drop in its price in five trading days to levels of $47 currently. There were multiple developments for Roche over the last few days. Roche has agreed to acquire TIB Molbiol Group for an undisclosed amount, and the deal is expected to close in Q4 of 2021. The acquisition will help Roche expand its portfolio of molecular diagnostics solutions. Roche also announced an alliance with Adaptimmune to commercialize its cancer therapies. Roche and Adaptimmune will work on up to five undisclosed targets, aiming to develop off-the-shelf T-cell therapies. Roche will pay an upfront amount of $150 million to Adaptimmune, followed by another $150 million over five years.  The overall deal value could exceed $3 billion with development, regulatory and commercial milestones payments, but it will mean Roche finally entering into cell therapy, a market which now appears to be lucrative, with average growth rates estimated to be in low-teens over the coming years.
Now, after a 3% fall in a week, will RHHBY stock continue its downward trajectory over the coming weeks, or is a recovery in the stock imminent? According to the Trefis Machine Learning Engine, which identifies trends in the company’s stock price using ten years of historical data, returns for RHHBY stock average 2% in the next one-month (twenty-one trading days) period after experiencing a 3% drop over the previous week (five trading days), implying that the RHHBY stock can see higher levels from here. Also, Roche has also benefited from a strong growth in its diagnostics business, courtesy of the company’s Covid-19 tests. While the rise of vaccination rates will result in lower testing demand eventually, the spike in new Covid-19 cases from the delta variant will likely result in continued demand for testing in the near term.
But how would these numbers change if you are interested in holding RHHBY stock for a shorter or a longer time period? You can test the answer and many other combinations on the Trefis Machine Learning Engine to test Roche stock chances of a rise after a fall. You can test the chance of recovery over different time intervals of a quarter, month, or even just 1 day!
MACHINE LEARNING ENGINE – try it yourself:
IF RHHBY stock moved by -5% over five trading days, THEN over the next twenty-one trading days RHHBY stock moves an average of 3%, with a good 69% probability of a positive return over this period.
Some Fun Scenarios, FAQs & Making Sense of Roche Stock Movements:
Question 1: Is the average return for Roche stock higher after a drop?
Answer: Consider two situations,
Case 1: Roche stock drops by -5% or more in a week
Case 2: Roche stock rises by 5% or more in a week
Is the average return for Roche stock higher over the subsequent month after Case 1 or Case 2?
RHHBY stock fares better after Case 1, with an average return of 3.1% over the next month (21 trading days) under Case 1 (where the stock has just suffered a 5% loss over the previous week), versus, an average return of 0.5% for Case 2.
In comparison, the S&P 500 has an average return of 3.1% over the next 21 trading days under Case 1, and an average return of just 0.5% for Case 2 as detailed in our dashboard that details the average return for the S&P 500 after a fall or rise.
Try the Trefis machine learning engine above to see for yourself how Roche stock is likely to behave after any specific gain or loss over a period.
Question 2: Does patience pay?
Answer: If you buy and hold Roche stock, the expectation is over time the near-term fluctuations will cancel out, and the long-term positive trend will favor you – at least if the company is otherwise strong.
Overall, according to data and Trefis machine learning engine’s calculations, patience absolutely pays for most stocks!
For RHHBY stock, the returns over the next N days after a -5% change over the last five trading days is detailed in the table below, along with the returns for the S&P500:
You can try the engine to see what this table looks like for Roche after a larger loss over the last week, month, or quarter.
Question 3: What about the average return after a rise if you wait for a while?
Answer: The average return after a rise is understandably lower than after a fall as detailed in the previous question. Interestingly, though, if a stock has gained over the last few days, you would do better to avoid short-term bets for most stocks.
It’s pretty powerful to test the trend for yourself for Roche stock by changing the inputs in the charts above.
What if you’re looking for a more balanced portfolio instead? Here’s a high-quality portfolio that’s beaten the market consistently since 2016.Notes: