Roche: Telavant acquisition fails to inflame investors’ spirits

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Heal thyself, is the advice the Bible offers to ailing physicians. That holds true for pharmaceutical companies which are looking a bit peaky. Roche, whose stock has fallen 27 per cent in the past 12 months, is a case in point.

After a spate of late-stage drug disappointments — including one involving Alzheimer’s disease — the market had been expecting acquisitions. Monday’s purchase of the US’s Telavant, for $7.1bn plus a near-term milestone payment of $150mn, fits the bill. Telavant’s potential treatment for inflammatory bowel disease may open the door to large new markets. But it also highlights the Swiss group’s own lagging status.

Telavant is 75 per cent owned by Roivant Sciences and 25 per cent by Pfizer. The company is developing a molecule that targets the TL1A protein. This is implicated in outsize immune responses such as those which cause IBD. Crohn’s disease and ulcerative colitis are the two commonest forms.

The market for treatments is worth $15bn in the US alone. About 80 per cent of patients experience no lasting remission using current therapies.

The TL1A protein is implicated in other inflammatory diseases such as rheumatoid arthritis, asthma and psoriasis. These have created a $50bn US market.

Telavant’s drug has reported encouraging stage 2 trial results. Roche plans to move it to stage 3, where the drug is tested on hundreds or even thousands of people. 

The fly in the test tube is that bolt-on acquisitions, however interesting, will not get Roche out of its funk. The group’s organic drug pipeline has disappointed investors, with high-profile failures. Phase 3 success rates have slipped well below industry averages, just 58 per cent in the four years to 2022.

Partly as a result, Roche now trades at less than 12 times next year’s earnings. Sector darling AstraZeneca is on over 15. Roche’s new-ish chief executive Thomas Schinecker has admitted that drug hit rates have been low. Without some homegrown successes, the group’s shares will continue to languish.

Lex is the FT’s concise daily investment column. Expert writers in four global financial centres provide informed, timely opinions on capital trends and big businesses. Click to explore