Biosimilar Challenge To Roche’s Herceptin!

Roche’s (NYSE: RHHBY) blockbuster drug Herceptin may face a growth challenge soon. Recently, Mylan and Biocon submitted application with the FDA for approval of biosimilar versions of the drug. Earlier this year, the companies announced that European Medicine Agency (EMA) has accepted to review Marketing Authorization Application (MAA) for the proposed biosimilar. Additionally, other players such as Samsung Bioepis and Amgen are coming up with their own biosimilar for Herceptin. With the introduction of these biosimilars, Herceptin is likely to lose market share. In this article will explore possible downside scenario to our forecast.

Our price estimate of $38 for Roche is about 30% above the current market price

What Is the Possible Downside To Our Base Case Scenario?

Herceptin generates about $6.9 billion in annual revenue which makes up for over 15% of the Roche’s total sales. We expect the drug’s sales to remain flat over the next 1one to two years and then fall annually as biosimilars hit the market.. In our base case we have modelled biosimilar to enter market towards 2018-19. However, an earlier entry of biosimilar drugs may precipitate the decline, and Roche may lose more than $1 billion in additional sales. If  Herceptin’s revenue falls by 20% below our base case forecast, it will result in over 5% downside to our price estimate. You can use the chart below to build your own forecast and see the impact on stock price.

While biosimilar competition may be looming, we expect strong growth from Tecentriq and Perjeta to offset the umpact to some extent. Tecentriq has been approved bladder and non-small cell lung cancer and is expected to be blockbuster setting up three way competition from with Merck’s Keytruda and Bristol Myers Opdivo.

Have more questions about Roche? See the links below.

• Roche’s Stock May Have Been Down, But The Company’s Business Has Strong Outlook
• What Drove 15% Growth in Roche’s Earnings Between 2011-2014 Even Though Other Big Pharma Companies Suffered A Decline?
• Why Is Market Assigning Low Earnings Multiple To Roche Despite Its Biotech Focus?
• Can Roche Grow Its Earnings By 15% In The Next 3 Years?
• With Biosimilars Getting Approval In Europe, Does Roche’s 2016 EPS Face A Meaningful Risk?
• How Can Roche Get 25% Boost In Revenues In 5 Years?
• Can Emerging Biosimilar Competition Cause > 10% Downside To Roche’s Valuation?
• Here Is Why We Are Bullish On Roche
• Three Things To Watch Out For Roche This Year