Rituxan’s Decline In Europe Is Alarming As Roche’s Key Drugs Face Biosimilar Competition
Roche’s (NASDAQ:RHHBY) recently released Q3 2017 earnings raised eyebrows with a double-digit dip in Rituxan sales in Europe. It was just the second quarter during which the drug faced biosimilar competition, and this trend could lead to a meaningful erosion in the company’s top line going forward. In addition to Rituxan, Avastin sales also declined in low single-digits while Herceptin was flat. It should be noted that these three drugs combined generated $20 billion in sales in 2016, and all three drugs are nearing patent expiry in the U.S. as well, which could be cause for concern for investors. After the patent expiry, generic drugs will be able to enter the market, and all three drugs will likely see a significant drop in sales in the U.S. as well. While Avastin is growing in international markets, especially China, which is expanding its drug coverage, the competition in the lung cancer market is increasing in the U.S.
Despite the concerns in Europe, Roche managed to post 5% growth in overall revenues on a constant currency basis. This can be attributed to continued growth in Perjeta sales, and a ramp up in its new drugs – Tecentriq, Ocrevus and Alecensa. While we expect these drugs to continue to ramp up in the coming quarters and beyond, it remains to be seen if they can make up for the likely sales declines for Avastin, Rituxab and Herceptin after biosimilar competition hits the U.S. markets. While Tecentriq recently did receive approvals for two types of metastatic bladder cancer and a specific type of metastatic lung cancer, its sales in the third quarter slowed down compared to the second quarter, which again is concerning for a new drug.
On the positive side, Roche has been successful in launching new drugs and has a strong position in the growing cancer therapy market. The initial performance of recently launched Ocrevus suggests that the company is looking to expand this lead in other therapeutic areas as well. The drug is aimed at treating multiple sclerosis, and raked in nearly $500 million in revenue so far this year. We estimate the drug’s peak sales to be north of $6 billion.
Our price estimate of $33 for Roche implies a slight premium to the market.
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