1. Pair Trade: Long Roche - Short Novartis
Tuesday, October 9th 2012
Company Description Investment Case
Roche Holding (ROG VX) H1 2012 was solid. Key drugs and Emerging
markets showed significant growth in Q2 2012. At its investor day, Roche
reiterated its debt reduction plan. The company indicated that it does not
intend to complete large-scale M&A. Smaller-sized opportunities are
preferred. This could underpin Roche’s ability to return incremental cash to
shareholders. The latest IMS sales released at the end of September
suggests that Q3 could have been another good quarter for Roche´s US
Business.
Market Price Data
Roche Holding (ROG VX) Restructuring benefits (further productivity measures), a well-diversified
Last Price (CHF) 183.20 Pharma portfolio, emerging market growth and late stage pipeline news
YTD Change 15.08% flow (new products are expected to be launched and several clinical trials
Mkt Cap (CHF bn) 158.806 are on a late-stage) seem to support Roche stock price.
Novartis (NOVN VX)
Novartis (NOVN VX): The US patent expiry of Novartis’ Diovan has occurred
Last Price (CHF) 58.5 st
on September 21 . Mylan received approval for their generic. Novartis
YTD Change 8.85%
should apply a high price reduction to maintain market share. This was
Mkt Cap (CHF bn) 158.177
expected and created uncertainty on the company’s 2012-2014 growth
Source: Bloomberg trajectory.
Analysts Recommendations:
The company is focused in long-term value creation. This seems the right
strategy. At the end of September, Novartis reported positive phase III for
Relaxin (for Acute Heart Failure) earlier than expected by the market.
However, near-term, the market will probably wait for higher visibility
regarding:
 Investment decisions behind new products in Pharma;
 Novartis’ post-Diovan margins.
Source: Bloomberg
The ROG VX/NOVN VX has a current ratio of 3.13. We will define as our
Market Multiples target a 3.39. We will use as a stop-loss 2.97.
P/E 2013 CAGR EPS DY 2013
Est. 2013/11 Est. Est. Technical Comment
Roche Holding 12.14 10.74% 4.47%
Novartis 11.35 -0.70% 4.10%
Source: Bloomberg
Next Report Date
Roche 3Q Sales October 16th
Novartis 3Q Results October 25th
Source: Bloomberg
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