ViewPoints: Does Roche's biosimilar math add up?

(Ref: ViewPoints Desk)

In fairness to Roche, it has never shied away from acknowledging the threat - now a reality - of biosimilar competition. The counter point is its argument that new launches will allow revenues to grow through this headwind. On Thursday, the company said fourth-quarter results show its numbers add up.

What happened?

Combined sales of nine newer products - those launched since 2012 - stood at around $1.75 billion in the fourth quarter. Annualising at $7 billion, this revenue will more than offset anticipated biosimilar erosion to the Avastin, Herceptin and Rituxan oncology franchises, says Roche.

The bigger picture

These metrics will be stress-tested in 2018, when Roche expects group sales (including its diagnostics division) to "grow in the stable to low single-digit range." An outlook that Bernstein analysts described as "a bit weak," while those at Morgan Stanley said it is at the low end of expectations.

Roche is confident that revenue from new products will increase thanks to organic growth, regional approvals and line extensions, plus the recent launch of Hemlibra in the US. Nevertheless, a 25-percent decline in Rituxan oncology sales during the fourth quarter in the EU - where biosimilar competition has launched - was worse than analysts had expected.

CEO Severin Schwan said Roche has been both "aggressive," and "realistic," in modelling biosimilar erosion, but conceded he had greater confidence in the company's forecasts for its growth driver brands.

See also ViewPoints: Fourth-quarter results showcase biosimilar headwinds and tailwinds

On this front, Roche must be particularly impressed with the multiple sclerosis treatment Ocrevus, which has gained an approximate 5 percent share of the US market just nine months post-launch, posting 2017 sales of $935 million. Equally impressive, around 70 percent of MS physicians have reportedly prescribed Ocrevus at least once, the company said - see Physician Views Poll Results: One product dominates our multiple sclerosis benchmarking poll

In 2018, investors will be looking for this performance to continue, watching how effectively Hemlibra launches in the market for haemophilia A in patients with inhibitors to factor replacement therapy and watching for evidence to suggest that Roche's PD-L1 inhibitor Tecentriq can be a key player in the first-line non-small-cell lung cancer market.

Final thoughts

Roche faces a "tug of war" between new revenues from recent launches and erosion to core brands due to biosimilar competition, says Bernstein analyst Tim Anderson. It promises to be quite a struggle; while Roche maintains its status as a best-in-class R&D organisation, between Avastin, Herceptin and Rituxan, around 40 percent of the company's pharma revenues are exposed to biosimilar erosion. A critical challenge, adds Anderson, is that the magnitude and duration of this threat is difficult to forecast.

This puts additional onus on Roche's pipeline to churn out novel assets. Award of 19 breakthrough designations from the FDA is evidence to show that Roche typically delivers "more than incremental advances," argues pharma head Daniel O'Day. He also suggests that no other company has been in a position to grow through such a large 'patent cliff' with innovative drug launches.

There will, of course, be setbacks; Roche also confirmed last week it is scrapping a number of drug candidates it acquired through the purchase of Seragon Pharmaceuticals and has also discarded lampalizumab, which had previously been developed for geographic atrophy and considered a potential blockbuster.

But just as the biosimilar threat cannot be swept under the carpet, Roche's R&D prowess versus its peers cannot be dismissed. At the ASH annual meeting in December, Roche pulled a rabbit from the hat with impressive data for the anti-CD79b antibody drug conjugate polatuzumab in diffuse large B-cell lymphoma (DLBCL). 

For all the excitement around CAR-T therapies (a segment Roche is conspicuously absent from), polatuzumab may offer similar efficacy and much more convenient administration to this modality in DLBCL patients, Roche argues.