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Last week, an Indian drug manufacturer, Biocon, announced that it has received the regulatory approval to market its biosimilar version of Herceptin in India, one of the largest selling drugs for the treatment of HER2-positive breast cancer. Worldwide, it is manufactured and marketed by Roche (OTC:RHHBY), one of the leading cancer drug makers in the world. Roche owns three of the world’s top selling cancer medications – Herceptin, Rituxan and Avastin. Until now, all of these drugs have remained immune to the threat of generic competition since they enjoy patent protection in most of the world. However, with the looming patent expiries of Herceptin and Rituxan in some large markets, Roche will have to increasingly depend on its new drugs to drive performance henceforth. Thankfully, we are seeing some positive signs from its new drug pipeline.
Our price estimate for Roche’s stock is around $60 per share, which is almost 15% below the current market price.
Biocon’s Is Unlikely To Make A Dent In Roche’s Revenue
After the recent regulatory approval, Biocon is likely to be the first company to launch Herceptin’s biosimilar version anywhere in the world. Currently it is only targeting India, where Roche’s patent was dismissed earlier this year. According to several Indian news reports, the country’s breast cancer market is pegged at around INR 130 crore – which amounts to around $20 million at an exchange rate of 65 Indian rupees per USD.  At that size, India represents just 0.04% of Roche’s 2012 sales of around $48.2 billion, and is too small to have any material impact on it’s financial performance. Read: Why Roche’s Patent Problems In India Aren’t A Big Concern
New Drugs Are Important For Driving Future Sales
Although India is too small a market for Roche to worry, the company must continue to innovate to generate future growth. The patents of Rituxan and Herceptin are likely to expire in Europe at the end of this year and in mid-2014 respectively, after which, these drugs are likely to be exposed to generic competition. According to Biocon’s management, the Indian drug maker is already conducting clinical trials for its generic version of Herceptin in the U.S. and Europe, and is also in the process of developing a generic for Rituxan. According to our estimates, up to 10% of Roche’s revenue could be at stake when Herceptin and Rituxan start facing competition from generic drugs in Europe. To see how we arrived at this estimate, please read: Roche Can Weather Europe’s New Approvals For Biosimilars
New Drugs Are Showing Promise
While older drugs gradually move closer to their patent expiry dates, some of Roche’s new drugs are showing promise lately. Its new breast cancer drug, Kadcyla, was recently approved in Europe.  This drug is more effective than Herceptin and is already available in the U.S. and Japan.  Its uptake in the market seems to be good as it generated sales of 156 million Swiss Francs over the first nine months of 2013.
Additionally, Roche’s drug obinutuzumab (or Gazyva), developed to replace Rituxan, has received FDA approval for the treatment of previously untreated chronic lymphocytic leukemia, one of the most common types of blood cancer. Roche has also filed for approval in Europe. On top of that, Roche had around 65 new molecular entities in its pipeline as of September, and was developing companion diagnostics for nearly two-thirds of its late-stage compounds. To read about some of the most promising drugs in Roche’s pipeline please see: All Eyes On Roche’s Oncology Pipeline At European Cancer CongressNotes:
- Roche’s patent pain to be Biocon’s gain, Business Standard, August 17, 2013 [↩]
- Roche’s Kadcyla nails EU approval for treating breast cancer, FiercePharma, November 20, 2013 [↩]
- Roche’s Kadcyla Beats Herceptin in Delaying Cancer Progression, Bloomberg, September 28, 2013 [↩]