What Is InterMune’s Revenue Potential For Roche?

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Swiss pharmaceutical giant Roche Holdings (NASDAQ:RHHBY) stated in late August that it will acquire California-based biotech firm InterMune for $8.3 billion. The acquisition is a big one and certainly demands a closer look at what InterMune brings to the table. InterMune is involved in the development of a drug called Esbriet, which is intended to treat a condition called idiopathic pulmonary fibrosis, which does not have an approved treatment in the U.S. The condition results in lung scarring and mortality. The drug has already been approved in Europe and Canada, and may soon be approved in the U.S. as well. Considering its steep price and the disease’s high fatality rate, Esbriet may become a blockbuster drug for Roche.

Our current price estimate for Roche stands at $40, implying a slight premium to the market price.

See our complete analysis for Roche


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Roche’s Current Presence In Respiratory Drugs Market Is Small

Beginning 2013, Roche stopped breaking out the revenues earned from drugs catering to respiratory diseases. In 2012, the revenues for the respiratory segment stood at $1.32 billion, representing growth of roughly 7.4% over 2011. The company only sells two drugs in this segment – Xolair and Pulmozyme. It appears that neither of them have reached blockbuster status yet. In fact, respiratory drug sales as a percentage of Roche’s overall pharmaceutical sales stood at a mere 3.5% in 2012. In contrast, the global addressable market is quite large. Roche primarily focuses on oncology drugs, and expansion in the respiratory segment through Esbriet presents a meaningful opportunity for the company.

Addressable Patient Pool For Esbriet

Esbriet is aimed at treating idiopathic pulmonary fibrosis. The treatment is already approved in Europe and Canada, and may get approval in the U.S. soon. Therefore, it makes sense to look at the addressable market in these geographies. According to the Wall Street Journal, there are about 100,000 patients suffering from this disease in the U.S. This represents roughly 0.05% of the adult population which is more susceptible to the disease (age 25 and above). Approximately 66.9% of the U.S. population belongs to this group. Let’s assume that 0.05% figure will be roughly the same for Canada and Europe. This gives us a potential 12,500 patients in Canada where approximately 72% of the population belongs to the age group of 25 years and above. Additionally, we estimate that roughly 190,000 patients are suffering from idiopathic pulmonary fibrosis in the European Union, where approximately 73.4% of the population belongs to the aforementioned age group. This puts total number of patients at little over 300,000. The European IPF Network pegs the patient pool in European Union and the U.S. at a combined count of roughly 360,000.

Potential Incremental Revenues For Roche

In June 2013, InterMune announced the pricing of Esbriet in Italy at around $44,000 per patient per year. [1] While this pricing is likely to vary across countries depending upon local regulations and purchasing power, we assume a median pricing of approximately $50,000 per patient annually. Considering a patient pool of 300,000, the market opportunity for Esbriet stands at $15 billion. If the drug can grab even 7% of this market, it could be a blockbuster drug for Roche with annual sales exceeding $1 billion.

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Notes:
  1. InterMune Announces Publication of Pricing and Reimbursement Conditions for EsbrietĀ® (pirfenidone) in Italy, PR Newswire, June 14 2013 []