When a major player announces good news in a lucrative market like weight loss drugs, it's often enough to drive shares of competitors down based on the assumption that they will have struggles ahead.

That's just what happened after an announcement by Roche Holding (RHHBY 0.20%) on July 16. Shares of Novo Nordisk (NVO -0.32%), Eli Lilly (LLY -1.38%), Structure Therapeutics, Altimmune, and Viking Therapeutics all took a hit. Biotechs with clinical-stage weight loss candidates, specifically Viking and Altimmune, fell by nearly 13%, with larger players dropping by more than 4% even while the market was mostly flat.

Is Roche stock worth buying based on the market's sharp reaction, with the idea being that it's the beginning of the end for most of the above companies? Or is there something else at play? Here's what you need to know.

The market is overreacting to this one

The market for weight loss drugs is heating up, but in terms of minting blockbuster medicines, only Novo Nordisk and Eli Lilly have any claims to the throne as of now.

But Roche likely has what it takes to be a contender in the niche of pill-based anti-obesity interventions. Though it only has two clinical-stage weight loss programs, both of which are in phase 1 trials, it doesn't necessarily need more than one super-successful candidate to experience a large and sustained boost to its revenue and earnings.

That's why its data update from its CT-996 program on July 16 made such a splash in the market. Per an interim data update from a phase 1 clinical trial, patients treated with CT-996 for just four weeks lost 7.3% of their weight. Patients who were treated with a placebo lost only 1.2% of their weight. And if the data are to be believed, no patients discontinued treatment due to side effects.

These data, while still preliminary, suggest that the candidate is rapidly acting, powerful in its effects, and also fairly easy for patients to tolerate -- a trifecta that none of the commercialized weight loss medicines have yet achieved. The other important thing to know about CT-996 is that it's formulated as a pill rather than as an injection. That means it would be more convenient for patients to administer at home than the likes of the market's leading medicines, Zepbound (by Eli Lilly) and Wegovy (by Novo Nordisk), both of which are shots.

With this information in hand, it makes complete sense why the stocks of potential future competitors tumbled. As of right now, CT-996 looks like it could easily wrest market share from the products made by Eli Lilly and Novo Nordisk, which, at least so far, have reported generally weaker efficacy at promoting weight loss and higher discontinuation rates from patients due to side effects. Even some of the more powerful candidates being advanced by biotechs such as Viking Therapeutics could lose some of their luster if Roche's next sets of clinical trial data continue to look as good.

A lot could happen in the remaining trials, and it'll be at least a couple of years before Roche has a shot at commercializing its candidate. The new program may have problems that become apparent over the coming quarters, or it may stumble and fail entirely. But for today, Roche's stock looks like it's worth purchasing on the basis of this data because the company might have a stellar product in hand.

Roche and the others are all worth considering

The chances of Roche's success with CT-996 do not necessarily mean that investors should follow the market's dumping of Roche's competitors. Nor does it mean that those other players are destined to see their market shares gobbled up.

Indeed, there are many programs in research and development (R&D) that could generate billions and billions in revenue whether or not CT-996 is ultimately commercialized. Many of those programs will have a hearty head start on the market, as they're closer to potentially getting approved for sale by the Food and Drug Administration (FDA).

In fact, if you're a growth investor trying to figure out whether to buy one of the companies that's in late-stage rather than early-stage clinical development, investing in a biotech like Viking Therapeutics or Altimmune is probably a better choice at the moment than buying Roche. The growth of a biotech business going from zero revenue to positive revenue is proportionally a bigger step than a juggernaut like Roche adding another winning medicine to its portfolio of many others.

On the other hand, betting on a pharma giant is a much safer move if you're more interested in preserving your capital, so act accordingly.