Inside Roche's Resilient Growth

Emily Carter

Welcome back to Global Equity Research, the podcast where we break down complex macroeconomics and investment ideas for everyone, not just institutions. I’m Emily Carter, and joining me from across town—though honestly, sometimes it feels like he’s beaming in from a university lecture hall—is my co-host and favorite market skeptic, David Mitchell.

David Mitchell

Hey, Emily, that’s a flattering intro—I’ll do my best not to go too deep into economics 301 today. For those tuning in for the first time: Global Equity Research is brought to you by Softgate Capital Research, the research arm of Softgate Capital itself. We’re here to bring institutional-grade stock analysis to retail investors, putting the same rigor into every story, every thesis.

Emily Carter

And if you want to read the deep dive—we're talking 25 pages of charts, interviews, all the stuff we’ll have to leave out here for time—the full report is available for 99 euros, either in the show notes below or directly at research.softgatecapital.com. So, let’s get into it.

Emily Carter

We’re kicking off today’s episode with Roche Holding AG—a name you’ve definitely recognized on medicine bottles, but maybe not as a portfolio powerhouse. Roche operates with a unique dual-pillar structure—Pharmaceuticals and Diagnostics. David, can you paint the big picture for us here? Why does Roche call itself the world’s largest biotech and one of the top five pharma firms by revenue?

David Mitchell

Absolutely. Roche is kind of the poster child for integrated innovation. On one side, you’ve got the Pharmaceuticals division developing big-name therapies—think Avastin, Rituxan, Tecentriq, newer launches like Vabysmo in eye care, and Hemlibra for rare bleeding disorders. And on the other, you’ve got Diagnostics, which is an absolute giant in everything from hospital lab equipment and point-of-care tests to genomic sequencing. The main play here: these two aren’t just separate profit centers. Their integration is what lets Roche build true personalized medicine. They're almost alone in that.

Emily Carter

And maybe the ultimate “moat” in my book—they’re not chasing generic drugs or expanding into over-the-counter supplements. It’s a focused, very R&D-heavy model, often dropping about 20% of sales back into research each year. Plus, the family stewardship—those Hoffmann and Oeri families—means there’s always decades-long thinking. Oh, and, I can never leave out the AA‑rated balance sheet. Defensive, institutional investors love that.

David Mitchell

Exactly. It lets them weather downturns, keep the R&D engine running, and pivot if needed. It's a rare blend—growth and stability, under one roof. How does owning Diagnostics and Pharma change the playbook? It gives Roche more control over patient outcomes and, candidly, more ways to respond when the patent cliff hits. I’ll get to that in a sec.

Emily Carter

So let’s talk numbers—because that’s where this gets really interesting. Roche is emerging from a tough stretch, 2020 to 2023, hit by biosimilar competition and the end of COVID testing as a growth tailwind. In 2024, though, it was a rebound year: group sales came in at 60.5 billion Swiss francs—that’s up about 7% at constant currency. Pharma brought in 46.17 billion, Diagnostics contributed 14.32 billion. The recovery is finally here.

David Mitchell

Right. And not just topline growth: their core operating margin climbed to 34.4% in 2024, up from 32.8%, even as they increased R&D to 13 billion CHF. So, they're not cutting innovation to juice numbers. Free cash flow hit 20.1 billion CHF, and they trimmed net debt to 17.3 billion. And for the record, another dividend hike—up to 9.70 CHF a share, and that’s the 37th straight annual rise. That’s some serious dividend discipline.

Emily Carter

But what’s key—and this is where your inner analyst comes in, David—is why is this recovery different from just a post-COVID bounce? Which metrics prove Roche is set for durable, not cyclical, growth?

David Mitchell

So, the real story is that, for the first time since the “patent cliff” started a few years ago, new product sales actually surpassed the lost revenue from older drugs. You see that in Pharma’s +8% CER growth and Diagnostics’ stabilization—even after COVID test sales collapsed, the underlying base, especially routine immunodiagnostic and molecular testing, powered through. Rising core EPS, margin expansion without starving the pipeline, and recurring cash flows all tell you: this is systemic, not just COVID whiplash or luck on currency rates.

Emily Carter

And it feels like we’ve heard this playbook before. It’s a lot like the post-pandemic rebound we discussed in our Skanska episode, where the strength comes from business model discipline, not just economic cycles. Roche seems to be making it stick.

Emily Carter

Now the science. Roche puts their capital to work in the pipeline—so much so that it’s almost a cliché in investor calls. David, can you walk us through what’s really material here, especially for future earnings?

David Mitchell

Happy to. Vabysmo is already a multi-billion product since launch in early 2022—rapid uptake for age-related macular degeneration and diabetic eye disease. Then in oncology? The big hitters like Tecentriq, Polivy, and Trodelvy, plus newer bispecific antibodies Lunsumio and Columvi in blood cancers. One area folks are really watching is the TIGIT program—Tiragolumab, an immuno-oncology antibody in late-stage lung cancer trials. And then there’s the GLP-1 pipeline, aiming to challenge the dominance of Eli Lilly and Novo Nordisk in obesity and metabolic disease. Spark, their gene therapy unit, could be a game-changer long term if they can translate that platform into commercial treatments for hemophilia or neurological disorders.

Emily Carter

It’s a packed pipeline, and it really highlights why Roche avoids big M&A—they build internally or bolt on targeted innovation, not mega-mergers. Oh, can’t forget their companion diagnostics strategy. A quick perspective—imagine a clinician able to select a cancer therapy based on a patient’s specific genomic markers, right inside a hospital lab, with Roche’s tests. That companion diagnostic isn’t just a side business, it’s literally making the pharma success rate higher and guiding treatment costs for payers.

David Mitchell

Exactly. For the question, which upcoming approvals would actually be inflection points? Vabysmo in new retinal indications, TIGIT immunotherapy if the data are positive, and successful expansion of GLP-1 into the obesity market. Regulatory wins for those could completely reset the growth profile.

Emily Carter

Let’s zoom in on Diagnostics for a minute. Roche salespeople sometimes call it “the annuity business in the group,” and it’s easy to see why. The consumables model—with hospitals and labs constantly buying test kits and reagents—gives them a stable revenue stream. But it’s a piece a lot of investors overlook because the margins are lower than Pharma.

David Mitchell

That’s right, but strategically, Diagnostics is more than just a “diversification play.” With the cobas pro high-throughput analyzers, and expanding genomic sequencing lineups, they’re pushing recurring products that drive adoption of their pharma assets. It’s also easier to navigate regional regulatory risk—if you’ve got diagnostics embedded into health systems, it’s that much harder to dislodge the brand. The Diabetes Care franchise, point of care kits, tumor profiling tests—these aren’t just cash cows; they’re reinforcing Roche’s overarching pharma playbook.

Emily Carter

Clinically, new instruments can literally change workflows overnight. Imagine a lab director using next-gen sequencing to quickly match a patient with the right targeted therapy. It’s faster diagnosis, better outcomes—and, frankly, an easier reimbursement argument. It’s win-win for providers and payers.

David Mitchell

Commercially, Diagnostics smooths out the volatility. When pharma patents expire or big launches stumble, you’ve still got a core business growing mid-single digits—even after the COVID testing boom wore off. As we saw in their 2024 results, that recurring revenue is the financial ballast and a driver for pharma’s success, too.

Emily Carter

Alright, valuation. As of January 2026, Roche trades just around 16 times forward earnings— 330 CHF per share. Price target is 370 CHF, which is about 12% upside, and with a 3% dividend yield, you’re in that 15% total return ballpark. David, how do you see the risk/reward shaping up?

David Mitchell

So, a couple things jump out to me. The base case is that Roche’s earnings step up meaningfully as new products mature, justifying a re-rating to 17 or 18x earnings, so north of 400 CHF is plausible if all goes right. Downside, if there are big pipeline flops or another wave of pricing pressure, Roche might compress to about 13-14x, settling back towards 300 CHF. But compared to peers—where, for example, Pfizer’s multiples are way lower post-COVID windfall, and Eli Lilly is much higher due to GLP-1—they're basically priced as a “steady eddy” right now, not a breakout. That gives you built-in optionality if pipeline wins come through.

Emily Carter

Exactly. And I have to say, the blended DCF points to a value in that 350–380 CHF range, which matches your target and the SOTP (sum-of-the-parts) analysis, too. If an investor had to choose one metric to validate the thesis next quarter? I’d say watch the sales momentum in Vabysmo and Hemlibra—if those outpace expectations, the bull case strengthens.

David Mitchell

Completely agree. And just keeping steady margin expansion—especially as they keep investing in R&D. That mix tells you the growth is durable, not forced through short-term cuts.

Emily Carter

So, let’s talk risks and what to watch: top of the list, of course, are clinical trial failures—if TIGIT in immuno-oncology or the GLP-1 program stumble, the investment case takes a big knock. There’s also diagnostics margin dilution, currency headwinds if the Swiss franc stays too strong, and good old pricing and regulatory pressures worldwide.

David Mitchell

On the flipside, catalysts to monitor: keep an eye out for major trial readouts—especially new data from those pivotal oncology and metabolism studies. Approvals for new Vabysmo indications or diagnostics product launches could be swing factors, too. And, not to be completely “quarterly obsessed,” but things like free cash flow generation and guidance on dividend growth signal ongoing strength.

Emily Carter

For our listeners who want to dig deeper, we’ll have a one-page fact sheet, a breakdown slide on the sum-of-the-parts, a pipeline timeline, and a map of Roche’s diagnostics offerings with the episode. Oh—before we wrap up, a quick reminder to book guests early for future episodes and always double-check the latest quarter’s numbers on recording day. Production team, you know the drill: music, SFX, and a 60-second takeaway clip for socials.

David Mitchell

And let’s not forget—the obligatory disclaimer. Nothing we say here is investment advice. Do your own due diligence. This is informational only, and, well, if you actually listened to the legal section at the end of our reports, you already know the drill.

Emily Carter

So, to bring us home: Roche, despite its challenges, looks set up as a defensive growth compounder with an attractive risk/reward profile—if that pipeline delivers. It fits well in a portfolio that needs stability but wants a path to upside. Next week, we’re tackling another global giant and their comeback strategy.

David Mitchell

Emily, always a pleasure talking shop. And to everyone who tuned in—thanks for listening. Catch you next time.

Emily Carter

Thanks, David. Take care, everyone—until next time!