Roche Can Weather Europe’s New Approvals For Biosimilars

by Trefis Team
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Last week European regulators announced that they have cleared two biosimilar (generics of biologic drugs) versions of Remicade, a monoclonal antibody biologics drug jointly owned by Merck (NYSE:MRK) and Johnson and Johnson (NYSE:JNJ). No monoclonal antibody biosimilar has ever been approved in the continent before this, and the event is being seen as a sign that the world may be moving towards a more favorable process for approving such generics.

This is a risk for Roche Pharmaceuticals (PINK:RHHBY) because all three of the company’s top-selling drugs – namely Avastin, Herceptin and Rituxan/ Mabthera – are monoclonal antibody biologics. If this category becomes susceptible to generic competition, these drugs are likely to see decreased sales and lower margins. The fact that the patents for Rituxan/ Mabthera and Herceptin are set to expire in Europe at the end of this year and in mid-2014 respectively makes the threat even more serious and immediate. (Patents for Avastin lasts until 2019 and 2022 in U.S. and Europe respectively and hence is not a worry.)

However, we believe that only around 10% of the company’s revenue at maximum will be at risk even if biosimiar substitutes for Rituxan/ Mabthera and Herceptin enter the European market. Further, the company has some time before these generics enters the U.S., its biggest market for these drugs. Further, we believe that Roche’s efforts to improve its drugs and get new patents for the improved versions will allow it to remain a leader in the oncology market.

See our full analysis for Roche Pharmaceuticals

Not Much Revenue Is At Stake In Europe

Together, Rituxan/ Mabthera and Herceptin garnered sales of around $3.8 billion from Europe in 2012, and this revenue will be under pressure if their copycat drugs are allowed to enter the European market. This amount is under 10% of the company’s 2012 sales of around $48.2 billion so the impact of any generic competition to these drugs in Europe is likely to be limited.

U.S. Market Appear To Be Safe For Now

According to GABI Online, the patents for Rituxan/ Mabthera and Herceptin remain valid in the U.S. until mid-2016 and mid-2019 respectively. [1] That means even if biosimilars for these drugs are able to enter Europe, the monopoly of these two Roche drugs will remain unchallenged in the U.S. for a while.

Another factor playing in Roche’s favor is the fact that the U.S. has traditionally lagged behind Europe by several years in developing a framework for approving biosimilars. President Obama did authorize the FDA to approve biosimilars in the country when he signed the Patient Protection and Affordable Care Act (PPACA) in 2010. However, the act itself was subject to a court case regarding its constitutionality and it was only in mid-2012 when a Supreme Court judgment ruled in favor of the act, thereby clearing the pathway for biosimilar approvals in country.

As of February 2013, no applications for biosimilar approvals were received by the FDA, and even though reports suggest that preparations to do so may already be underway at some firms, we can expect the U.S. to continue lagging Europe in the approval process. [2] [3] The more time it takes for biosimilars to enter the U.S. market, the longer Roche’s drugs will dominate the market.

Meanwhile Roche Is Innovating

The company is already working on improving its drugs and getting new patents for the improved versions. For example it is GA-101 (obinutuzumab) is currently being tested as a better alternative to Rituxan and is expected to replace Rituxan as the company’s top selling drug.

We believe that the company has a strong oncology pipeline and will continue to lead the oncology market. According to our current forecasts, Roche’s oncology sales could exceed $30 billion over the next 5-6 years.

Note: We converted Roche’s sales figures from CHF to USD using a rates of $1.06/CHF.

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Notes:
  1. US$54 billion worth of biosimilar patents expiring before 2020, GABI, September 30, 2011 []
  2. US supreme court ruling means biosimilars pathway safe, June 7, 2012 []
  3. An Outlook On US Biosimilar Competition, Thomson Reuters, April 2013 []
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