Roche’s Chugai Seeks Next Milestone after Finding Success with Eli Lilly’s Obesity Drug

Japan-based Chugai Pharmaceutical (JP:4519), which is majority-owned by Swiss drugmaker Roche (RHHBY), is now seeking its next milestone after finding success with Orforglipron, Eli Lilly’s (LLY) experimental obesity pill. It is expected that once approved, Orforglipron, which was licensed by Chugai to Eli Lilly in 2018, could reshape the lucrative weight-loss drug market. According to the Financial Times, the Japanese company is now seeking further success by contemplating the idea of combining its anti-muscle wasting drug (GYM329) with Orforglipron in an attempt to address the side effect of muscle loss that is associated with weight-loss drugs.

Roche’s Chugai Eyes Further Growth

Hitoshi Iikura, a senior executive at Chugai, told the Financial Times that the company has “high expectations” that its GYM329 drug to treat spinal muscular atrophy could be combined with Orforglipron or other similar treatments to develop an anti-muscle wasting drug. Interestingly, Chugai, which is 59.9% owned by Roche, originally developed GYM329 to treat the degenerative muscle-wasting disease SMA. Iikura stated that the company extended the use of GYM329 for treating obesity, which is a “broader application than we had initially expected.”

Chugai’s innovation and success with Orforglipron made it the Tokyo Stock Exchange’s 11th largest company by market capitalisation. Notably, Chugai and LLY stocks spiked in April when the late-stage trial results of Orforglipron showed that it could reduce weight and blood sugar while ensuring safety on par with injectable treatments like Novo Nordisk’s (NVO) Wegovy and Ozempic and Lilly’s Zepbound and Mounjaro.

According to the Financial Times report, analysts emphasized that the idea of combining Orforglipron and GYM329, which is licensed to Roche, is still at an early stage, as some researchers are doubtful about the risk of muscle loss resulting from anti-obesity drugs. That said, Bernstein’s Miki Sogi believes that if this combination becomes a standard of care for obese patients, “then that would be huge.”

Chugai and Roche’s Strategic Alliance

Chugai’s strategic alliance with Roche is one of the key reasons behind its success, with this deal giving the company a high degree of autonomy despite being majority-owned by Roche. Jefferies analyst Stephen Barker believes that Chugai’s “relationship with Roche is a superpower.”

Under the strategic alliance between Chugai and Roche, entered into in 2002, both parties agreed to retain Chugai’s name and CEO, management autonomy, and listing on the Prime Market of the Tokyo Stock Exchange. Chugai is focused on researching molecules and antibodies, while not burdened with the costs associated with late-stage clinical trials, thanks to the backing of Roche. Consequently, Chugai’s operating profit margin of 48% in 2024 was among the highest in the industry.

Meanwhile, Roche can market Chugai’s products. Also, the Swiss pharma giant has the right of first refusal on all Chugai treatments. While Roche turned down Orforglipron due to its unfavorable experience with a weight-loss treatment, Chugai’s Hemlibra, a haemophilia treatment, has become Roche’s second-biggest seller.

What Is the Price Target for Chugai Pharmaceutical Stock?

Analysts have a Moderate Buy consensus rating on Chugai Pharmaceutical stock based on two Buys and two Holds. The average 4519 stock price target of ¥8,830.12 implies about 14% upside potential from current levels. Chugai stock has jumped more than 61% over the past year.  

Is RHHBY Stock a Buy, Hold, or Sell?

Wall Street is sidelined on Roche Holding stock based on two Hold recommendations. The average RHHBY stock price target of $44 indicates 8% upside potential. RHHBY stock has rallied over 22% in the past year.