Genentech Seals Roche's Dominance of Oncology Market

If there was such a thing as a global anti-trust commission they might have something to say about Roche’s (RHHBY.PK) acquisition of Genentech (DNA) with respect to the Swiss pharma giant’s projected domination of the oncology market; the pharmaceutical industry’s fastest growing and, in three years, biggest therapeutic area.

Given the existing relationship and geographical split of revenues between Roche and Genentech, anti-trust concerns are not expected to have any tangible impact on the $46.8bn deal going ahead. However, a review of market share data from EvaluatePharma illustrates the oncology powerhouse that Roche will become: sales of its oncology products are forecast to reach $28.3bn by 2014, grabbing a massive 38% of the overall $75bn cancer market (see tables below). This majority share of a key market in the hands of one company is significantly ahead of the biggest market shares seen in any other therapy area.

Market domination

The two companies already split the commercialisation of shared oncology products such as Avastin, Herceptin and Tarceva, with Genentech selling the drugs in the US and Roche in Europe. Therefore the takeover does not fundamentally change the market share dynamics in these regions, which is all the American and European regulators can naturally review.

However, on a global basis, with Roche and Genentech already dominating oncology sales in the US and Europe, the acquisition will massively increase Roche’s market-leading position. The table below shows the top ten companies in the oncology market in 2014, excluding revenues from immunomodulator drugs such as Revlimid and Torisel.

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Roche’s dominance of the oncology market is accentuated further when reviewing the company’s share of the anti-cancer antibody sector, which is by far the biggest sub-category with forecast sales of these biotech products at $32.7bn by 2014; Roche will control 77% of this antibody sub-market.

In contrast, no other single company has such a dominant share of any other therapy area, even considering the new companies created by the recent mega-mergers of Pfizer (PFE) + Wyeth (WYE) and Merck (MRK) + Schering-Plough (SGP).

Whilst Pfizer held a 46% share of the cholesterol-lowering market in 2007, due to the freakishly large sales of Lipitor, the only other forecast market share that comes close to Roche’s dominance of the oncology is Novo Nordisk’s 27% share of the anti-diabetic market in 2014. The single biggest market shares in most other therapeutic areas are normally between 15-20%.

Bursting oncology pipeline

A review of the companies with the biggest R&D pipelines in terms of the number of projects in development reveals that although GlaxoSmithKline retains its number one ranking with officially the most shots on the R&D goal, the recent mega-mergers have certainly created much fuller and broader pipelines.

Although the Roche+Genentech combination will have an estimated 194 projects in development, their pipeline will actually be the weakest in terms of proportion of products in late-stage testing; just 23% of Roche’s research products will be in phase II trials or later, compared to 47% of Novartis’ pipeline.

Note: the count of products for Roche+Genentech has been adjusted to remove products already under joint collaboration

However, this statistic masks the fact that Roche and Genentech probably spend a significantly higher proportion of their R&D budget on line extensions for currently marketed products, particularly their oncology antibody products, than many of their peers.

The fact the combined company’s pipeline is lacking in late stage products does however help to explain why so few of Roche or Genentech’s pipeline products have been assigned any value by analysts (Roche hoping the cash will really start to flow following Genentech deal, March 26, 2009).

In terms of combined R&D spend this year, the Roche+Genentech entity could be the industry’s leader by spending a staggering $10.6bn. Although these combined R&D spend forecasts will be reduced in time by cost saving initiatives, it is clear who the industry’s big spenders of research dollars will be over the next few years.

Finally, as if Roche’s current supremacy in the oncology market through already approved drugs was not enough, it seems likely that Roche will, by the law of averages, retain its leading position well into the future; Roche’s pipeline of 88 oncology-related products is a significant number of shots on goal and is almost double the number of projects that most of Roche’s peers have in development in this most valuable of therapy areas.

Disclosure: no positions