Roche CEO warns on vaccine optimism and Gilead’s Remdesivir fails first trial

Equities 4 minutes to read

Peter Garnry

Head of Equity Strategy

Summary:  A vaccine takes much longer than the current expectation of 12-18 months according to Roche's CEO. This is bad news for the recovery camp as a vaccine is absolutely critical for society to bounce back to meaningful growth levels post the expected historical drop in economic activity in 2020. In today's US equity session sentiment took a hit when Financial Times reported that Remdesivir, the Gilead Sciences drug that was highlighted last week as a potential candidate for treatment of COVID-19, failed its first trial.


The CEO Severin Schwan of Roche said yesterday in a Bloomberg TV interview in relation to its Q1 revenue figures that a 12-18 months target for a COVID-19 vaccine is very ambitious and history shows it often takes longer time. It’s often the large scale manufacturing that’s the problem and especially for a global market. He also teared apart the current antibody tests for immunity as faulty because they had been rushed to market with too little testing while touting its own test coming to the market in early May as being better tested and more reliable.

Schwan also sounded negative on testing capabilities and that widespread mass testing of new cases of COVID-19 was almost impossible due lack of infrastructure. His expectations on a good COVID-19 vaccine was in our view much more pessimistic than what the market is currently pricing in equities and we are quite surprised that the market hasn’t taken more notice of this. The V-shape recovery camp will have a hard time if a vaccine is not coming fast.

Roche’s Q1 revenue figures yesterday showed the company’s diversified portfolio of drugs and businesses had been resilient so far in 2020 and the company also confirmed its 2020 outlook which is rare given how many companies are abandoning their guidance. With the current free cash flow generation and enterprise value of CHF 304bn the company is offering a 5% free cash flow yield which is impressive for a business with almost zero net debt. The shares closed at an all-time high in today’s session.

Source: Saxo Group

As if the pessimistic view from Roche’s CEO was not enough Financial Times reported that Gilead Sciences’ Remdesivir has failed in its first trial as a treatment against COVID-19. The news impacted the entire US equity market as the news last week that the drug had success in a hospital in Chicago lifted the market and Gilead’s shares. However, in our Saxo Market Call podcast on April 17 we did highlight the many arguments for why it was most likely a planted story to boost the shares ahead of option expiry. Gilead has commented that it finds the study inconclusive at this point and will continue to look at the drug. We will most likely have to get used to these very positive stories on health care stocks related to some drug or potential vaccine to treat COVID-19 as the market is huge for the company that get a drug or vaccine first. Sometimes the hype on a bad study is enough to convince governments to purchase a drug or vaccine. Tamiflu for treatment of H1N1 flu was such a case where the governments likely wasted large amount of money on something that turned out be ineffective.

Source: Saxo Group
Disclaimer

Saxo Capital Markets (Australia) Pty Ltd prepares and distributes information/research produced within the Saxo Bank Group for informational purposes only. In addition to the disclaimer below, if any general advice is provided, such advice does not take into account your individual objectives, financial situation or needs. You should consider the appropriateness of trading any financial instrument as trading can result in losses that exceed your initial investment. Please refer to our Analysis Disclaimer, and our Combined Financial Services Guide and Product Disclosure Statement. All legal documentation and disclaimers can be found at https://www.home.saxo/en-au/legal/.

The Saxo Bank Group entities each provide execution-only service. Access and use of Saxo News & Research and any Saxo Bank Group website are subject to (i) the Terms of Use; (ii) the full Disclaimer; and (iii) the Risk Warning in addition (where relevant) to the terms governing the use of the website of a member of the Saxo Bank Group.

Saxo News & Research is provided for informational purposes, does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. No representation or warranty is given as to the accuracy or completeness of this information. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. No Saxo Bank Group entity shall be liable for any losses that you may sustain as a result of any investment decision made in reliance on information on Saxo News & Research.

To the extent that any content is construed as investment research, such content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication.

Please read our disclaimers:
- Full Disclaimer (https://www.home.saxo/en-au/legal/disclaimer/saxo-disclaimer)
- Analysis Disclaimer (https://www.home.saxo/en-au/legal/analysis-disclaimer/saxo-analysis-disclaimer)
- Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)

The Saxo trading platform has received numerous awards and recognition. For details of these awards and information on awards visit www.home.saxo/en-au/about-us/awards

Saxo Capital Markets (Australia) Pty Ltd ABN 32 110 128 286 AFSL 280372 (‘Saxo’ or ‘Saxo Capital Markets’) is a wholly owned subsidiary of Saxo Bank A/S, headquartered in Denmark. Please refer to our General Business Terms, Financial Services Guide and Product Disclosure Statement to consider whether acquiring or continuing to hold financial products is suitable for you, prior to opening an account and investing in a financial product.

Trading in financial instruments carries various risks, and is not suitable for all investors. Please seek expert advice, and always ensure that you fully understand these risks before trading. Trading in leveraged products such as CFDs and Margin FX products may result in your losses surpassing your initial deposits. Saxo Capital Markets does not provide ‘personal’ financial product advice, any information available on this website is ‘general’ in nature and for informational purposes only. Saxo Capital Markets does not take into account an individual’s needs, objectives or financial situation.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the US and other countries. AppStore is a service mark of Apple Inc.

The information or the products and services referred to on this website may be accessed worldwide, however is only intended for distribution to and use by recipients located in countries where such use does not constitute a violation of applicable legislation or regulations. Products and Services offered on this website is not intended for residents of the United States and Japan.
Please click here to view our full disclaimer.