Chugai To Remain Unscathed By Roche's Internal Restructuring And Cost-cutting Measures

Roche CEO Schwan also informed analysts that the company is not considering expanding its business into other areas such as a pharmaceutical generics or biosimilars.

TOKYO - Roche Group is in the process of reviewing and implementing a group-wide productivity and cost reduction program, but Japanese partner Chugai will not be directly impacted by the initiative, according to Roche's CEO.

Severin Schwan told analysts and reporters at a meeting in Tokyo Oct. 8 that Chugai will not be included in Roche's group-wide Operational Excellence initiative, which Schwan said is meant to "adapt cost structure" and focus resources toward "investment that will drive innovation." Schwan confirmed that the company will announce more detailed measures by the end of the year and implementation will take place in 2011 and 2012.

Roche announced the initiative Sept. 3, saying it would conduct internal reviews to find sources - likely program and staff cuts - to "protect profitability" after a year of negative pipeline news and intense price pressure in the U.S. and Europe (Also see "Roche Announces Internal Review Likely To Result In Staff, Program Cuts" - Pink Sheet, 3 Sep, 2010.).

"We are very happy with the Chugai structure. I don't see any reason why we'd change the structure," Schwan said, sharing the stage with Chugai CEO Osamu Nagayama.

Roche Won't Go Generics, Biosimilar Route

The Roche CEO also informed analysts that the company is not considering expanding its business into other areas such as a pharmaceutical generics or biosimilars.

"Unlike other companies that are diversifying into other areas, we remain focused on what we are good at - innovation."

Following the meeting, Schwan told PharmAsia News that in searching for partner-derived innovation, Roche and Chugai search for partnerships in parallel to each other, though he acknowledged that Chugai has better access to Japan's academia networks.

"Research needs to be done in a decentralized approach. There is no economy of scale when it comes to partnering. It's helpful to have multiple approaches to research, because every scientist you meet thinks he's the smartest," Schwan said. Roche and Chugai have opt-in rights for each other's products.

The relationship between the companies from an operational standpoint is on a product-by-product basis and contract-by-contract. In the case of Actemra, Roche in-licensed Actemra from Chugai; Chugai maintains development and commercial rights to the product in Japan, South Korea and in Taiwan. Roche leads the development elsewhere (Also see "Roche Pharma Japan General Manager and Asia Regional Head-Pharma Partnering Mark Noguchi In Hot Pursuit Of Sources Of Innovation in Asia: An Interview with PharmAsia News" - Scrip, 31 Jul, 2008.).

All major pharma are looking to expand in emerging markets, and companies like Pfizer and AstraZeneca are incorporating established brands units into their expansion strategies in price-sensitive markets. Abbott announced it would pay $3.72 billion to acquire the domestic formulations business of Piramal Healthcare to anchor Abbott's newly created established products division (Also see "Abbott's Piramal Acquisition Is $3.72 Billion Push In Emerging Markets With Established Products" - Scrip, 21 May, 2010.).

Roche Stands Behind Innovation In Emerging Markets Too

But Roche, which generates about 70 percent of its revenue from biotech, is maintaining its product lineup in countries like China.

"Some assume you can't sell high-tech drugs in emerging markets, which is not true. Our portfolio is exactly the same and is driving growth [in those markets]," Schwan said.

International markets - which exclude U.S., Western Europe, and Japan - contributed 27 percent of Roche's global sales in the first half of 2010, a 15 percent increase year-on-year. Japan now represents 9 percent of Roche sales, a 5 percent decrease due primarily to a higher-than-expected 18 percent price cut for Herceptin (trastuzumab) during Japan's biannual price revision (Also see "Roche, Novartis, Lilly, J&J: Earnings Call Roundup For Emerging Markets" - Scrip, 22 Apr, 2010.).

"The decisive issue in price is the value you can provide. ...If you can extend a life, you can seek a premium price," Schwan said.

Schwan said the company will drive growth in emerging markets through its oncology brands. Herceptin and MabThera/Rituxan (rituximab) have low penetration rates in international markets, and the country believes in can gain market share. Roche's largest product Avastin (bevacizumab) recently launched in China, just weeks after fake Avastin caused adverse events in 61 patients in Shanghai (Also see "Roche Launches Avastin In China For Colon And Rectal Cancer Following Counterfeit Drug Incident In Shanghai" - Scrip, 30 Sep, 2010.).

Pipeline Setback, Patent Relief

It has been a rough year for Roche with regard to its late-stage pipeline.

First, the company halted dosing in Phase III trials of the GLP-1 receptor agonist taspoglutide after some patients developed anti-drug antibodies that caused skin reactions and gastrointestinal symptoms, setting back the compound's regulatory timeline at least 12 to 18 months.

Schwan said the company is analyzing the root cause and hopes to conclude its findings by the end of the year, but industry analysts expect the company to withdraw the product (Also see "Roche/Ipsen's Suspended Taspoglutide Could Become Another Diabetes Casualty" - Pink Sheet, 10 Sep, 2010.).

In a potential hit for the company's largest product, U.S. FDA is deciding whether to remove the metastatic breast cancer indication for Avastin, which was originally granted through accelerated approval. FDA's Oncology Drugs Advisory Committee voted unanimously against full approval for the indication after data showed a smaller benefit for progression-free survival and no benefit for overall survival.

Most recently, FDA refused to file Roche's BLA for trastuzumab-DM1 (T-DM1), a conjugated version of Herceptin, for accelerated approval. The filing was based on the results of a single-arm Phase II study.

"We've had discussion with FDA about primary endpoints, namely progression-free survival versus overall survival, and we do see an increased focus of the FDA to overall survival," Schwan said.

In response to its conversations with FDA, Roche added overall survival to its Phase III trial for T-DM1, almost doubling patient enrollment to power the study for the additional primary endpoint.

"This increased regulatory hurdle has an immediate impact on how we design our trials and the investment we have to make to ensure we bring these products to market."

Schwan tried to find a bright spot in the portfolio's near-term future, pointing to the company's relatively small exposure to patent expiries. Through 2013, Roche will lose less than 5 percent of U.S. sales due to generics or biosimilars. In comparison, Pfizer and Novartis will both lose nearly 35 percent of U.S. sales by 2013.

- Daniel Poppy ([email protected])

[Editor's note: This article appears courtesy of PharmAsiaNews.com, Elsevier Business Intelligence's source for Asian biotech and pharmaceutical news. Register for a 30-day risk free trial.]