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 With a copycat of Roche's blood cancer drug Rituxan pending European
approval, Novartis aims to muscle in on a share of sales that last
year hit 7 billion Swiss francs ($7.1 billion).
But Roche is fighting back with a new medicine, Gazyva, which it
contends is better than Rituxan.
This clash illustrates the Basel drugmakers' starkly different
strategies. Beyond its own new drug portfolio, Novartis has a big
side bet that cheaper "biosimilars" from its Sandoz generics unit
can grab rivals' profits, while Roche has limited its focus to new
drugs to counter such incursions.
"Does that thinking reflect at all about the Roche stake? Obviously,
it certainly does," Novartis CEO Joe Jimenez said last week, adding
he would unleash "one of the best and most-potent oncology sales and
medical forces" to peddle rituximab, Rituxan's generic name, in
Europe as early as next year.
Novartis amassed one-third of Roche's voting stock in the early
2000s during a failed merger bid. As Jimenez finally mulls an exit,
he has abandoned demands that Novartis get a premium for the stake.
He has not put a timeframe on the potential sale, but analysts think
it increasingly likely as the battle between the firms intensifies.
The money raised could bolster Novartis' hand, while Roche will be
hoping the sale does not drive down its share price. Analysts think
the stock is likely to appeal to institutional investors rather than
a potential bidder as Roche's founding family retains a controlling
stake.
CHANGING ASSUMPTIONS
Roche declined to comment on Novartis' plans. But it remains
confident its scientists can come up with new, better drugs faster
than biosimilars from rivals such as Novartis can loot older drugs'
revenue.
A study released last week showing Gazyva was superior to Rituxan
for follicular lymphoma "is a perfect example of our commitment to
maintain our focus on developing innovative medicines for people
facing difficult diseases," said Roche pharmaceuticals head Dan
O'Day on Monday in an emailed response to questions.
As Roche musters new data on its next-generation drugs, Jimenez last
week fired off a warning: Biosimilar copies will likely sell at
discounts of as high as 75 percent versus the original product, far
deeper than Novartis originally anticipated.
The trend emerged in Europe last year, with steep discounts offered
on copies of Johnson & Johnson and Merck & Co's co-branded Remicade,
for rheumatoid arthritis and Crohn's disease.
What he loses on price, Jimenez now plans to make up for in volume.
"If you look at the absolute return that we project, we're
essentially on (target) or higher, even with those assumptions," he
said.
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MOTIVATION TO SELL
Novartis has many motivations to unload its Roche shares.
For one, Novartis is building its cancer franchise after its 2015
acquisition of GlaxoSmithKline assets, so the stake in Roche, the
world's biggest maker of oncology medicines, risks putting too many
eggs in one basket.
Profit margins on Roche cancer drugs may narrow, too, if Novartis's
biosimilar strategy succeeds.
"The decision to divest its Roche stake is partly motivated by
biosimilar dynamics," Leerink analyst Seamus Fernandez told
investors.
Proceeds from the shares would replenish Novartis's acquisitions
warchest as Jimenez seeks "bolt-on" targets of up to $5 billion, or
possibly larger, as prices for takeovers come down.
Also, inter-company tensions may escalate should Roche's lawyers
seek to stall Novartis's rituximab copy in the courts. Such a
lawsuit would make for uncomfortable times in Basel.
The legal threat is real: Xarxio, Novartis's version of Amgen's
blockbuster that prevents infections in cancer patients, hit the
U.S. market last year only after beating back a legal challenge.
Jimenez said the aggressive legal strategies of drug originators to
delay would-be copies have replaced government approval as the
biggest stumbling block to speedy U.S. biosimilar introductions.
"You're seeing less regulatory time, more blocking," he said.
"Eventually, as the legal battles are won, you're going to see a
good business in the U.S. with biosimilars."
(Editing by Mark Potter)
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