Roche Holdings Patent Cliff: A Look At The Oncology Division

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While the pharmaceutical companies see patent approvals and expirations on an ongoing basis, this decade presents a significant challenge to them as many of the world’s largest selling drugs are scheduled to lose patent protection over the next six year putting close to $300 billion at risk. [1] After a drug patent expires, generic manufacturers can replicate and sell the product at much cheaper prices, generally leading to a steep decline in the drug’s revenues. We have recently analyzed the impact of patent cliff on major pharma companies like Pfizer, Merck and Abbott. (Read Pfizer Patent Cliff: A Look At The Cardiovascular Drugs Division, Merck Patent Cliff: A Look At The Anti-Infectives Drugs Division and Abbott Patent Cliff: A Look At The Autoimmune and HIV Antiviral Divisons). Below we discuss the impending patent cliff and prospects of Roche Holdings’ oncology drugs division.

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No Major Threat From Patent Expiries

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Roche has a formidable presence in the oncology drugs market with a range of successful products such as Avastin, Herceptin, and Rituxan. They are some of the world’s largest-selling cancer drugs with each clocking over $5 billion in sales. But, the drug maker’s blockbuster drugs Rituxan and Herceptin will soon see their European patent expiring in late 2013 and mid 2014, respectively. [2]

These drug collectively garnered more than $3.5 billion in sales from Europe, around 15% of its total oncology sales in 2011. [3] However, what makes Roche comfortable is that U.S. patents for these drugs are still safe until 2016. Further, both of these drugs are biologics and generic erosion for biologics could be much slower and more limited than small molecules. Getting approval for biosimilars (generics of biologics) is complicated as clinical trials are required for the regulatory approvals. Further, it is expensive to make biosimilars, thus prices will not be significantly down than the original biologic. Competition for Rituxan is expected to come only by 2015. [4]

Pipeline Offsets Revenue Losses

To encounter the patent expirations, Roche has been spending very heavily on its oncology pipeline (almost 50% of its total R&D expenditure), which will bear the fruits for it now. The company has a strong pipeline in the oncology drug segment and more than 10 other pipeline drugs are expected to be ready for filing in the next 2-3 years. It includes Obinutuzumab (GA101), which the company said, has outperformed the Rituxan for the treatment of relapsed indolent Non-Hodgkin’s Lymphoma (slow developing lymphoma) in phase 2 GAUSS trial. The company could use the experimental drug to protect losses from biosimilars entry. [4]

T-DM1, which holds the most promise in its pipeline, could help the company fend-off revenue losses from Herceptin patent expiry. The drug is expected to garner more than $1 billion each year for original indication (HER2 positive breast cancer). However, with broader usage approvals,  T-DM1 sales could tick more than $5 billion a year, which will trigger an upside to our price estimate. [5] Another breast cancer drug Perjeta (pertuzumab) won FDA approval recently and will add to the revenues going forward. (Read Roche Could Pass $47 Fair Value On Breast Cancer Drug Potential)

In addition, label extension of the current drugs will also add to the growth in the oncology segment. There are 6 additional indications in the oncology segment for which Roche will file for approval in 2012-13. Zelboraf, a medicine for treatment of melanoma, is being tested for additional indications like metastatic melanoma (a type of skin cancer) and papillary thyroid cancer (most common thyroid cancer). Rituxan could also add other type of lymphoma in its indication list. Owing to these factors, the oncology segment accounts for more than 50% of the company’s value despite the patent expiries, according to our estimates.

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Notes:
  1. BIO 2012: Implications of the ‘Patent Cliff’, The Life Science Report, June 19 2012 []
  2. US$54 billion worth of biosimilar patents expiring before 2020, GABI Online, Sept 30 2011 []
  3. Roche Finance Info System, Roche Holdings []
  4. Rituxan And Its Biosimilar Competitors, Seeking Alpha, July 30 2012 [] []
  5. T-DM1, Firece Biotech, Oct 8 2012 []