Opportunity For Roche To Further Strengthen Its Cancer Business Against Evolving Competition

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Roche Holdings (NASDAQ:RHHBY) may be expediting the approval of Atezolizumab, which is still some time away. A monoclonal antibody, Atezolizumab is a so-called PD-L1 inhibitor that helps the immune system attack cancer cells. Programmed Death Igands (PD-L1, PD-L2, etc.) are large proteins associated with immune system supression and in abnormally high numbers are associated with cancer cell growth. In inhibiting PD-L1s, the therapy, generally in combination with other drugs, allows the immune system to attack cancer cells, thereby shrinking tumors.  This class of drugs (along with PD1 inhibitors) is likely to constitute the majority of the immuno-oncology market. According to OncoSec, an emerging biotech company developing associated therapies, the market for these drugs could be $24 billion, whereas some estimates peg the market for immuno-oncology at around $35 billion.  There is plenty of opportunity here and a couple of highly successful anti-PD-L1/anti-PD1 drugs could lift Roche’s growth outlook enough to create 10% upside.

Developing and marketing cancer drugs is Roche Holdings‘ (NASDAQ:RHHBY) bread and butter, accounting for nearly 60% of its value, according to our estimates. Needless to say, the company will fiercely defend its successful cancer drug franchises, but that alone won’t be enough. It needs to come out with new cancer drugs to fuel its long term growth and mitigate the potential impact of biosimilar competition in the future. Could one such drug be Atezolizumab? Roche’s recent press release suggests that the company may be fast tracking the approval process for this drug with the FDA. Its large phase 2 trials on patients with advanced or metastatic non-small cell lung cancer have met a primary end point and the company will share the results with the authorities soon. [1] Along with this, there are multiple phase 3 trials going on and the drug has already received breakthrough status from the FDA.

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Roche’s current cancer franchises are holding their ground, for now. The first line combination therapy of Herceptin and Perjeta for metatstatic breast cancer has aided Herceptin’s revenues. The usage of multi-drug therapies in adjuvant areas can allow Roche to transfer pricing and stay competitive against biosimilar advancement. Also, with longer treatment periods, it won’t be easy for healthcare providers to replace Roche’s current drugs with biosimilars quickly. However, the pipeline is where the excitement lies and Atezolizumab is a fine example. The fact that it is being tested for non-small cell lung cancer (NSCLC) is encouraging. Lung cancer is one of the most common cancers in the world, accounting for nearly 13% of all diagnosed cases and 20% of cancer related deaths each year, according to the Cancer Research Institute. NSCLC constitutes roughly 85% of all lung cancers. The market is big and Roche has proven expertise in cancer research. Can it continue to hold its ground and, perhaps, even advance? Let us know your thoughts.

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Notes:
  1. Pivotal Phase II study showed Roche’s investigational immunotherapy atezolizumab shrank tumours in people with a specific type of lung cancer, Roche Press Release, Aug 17 2015 []