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There's lot at stake for Roche (OTCQX:RHHBY) at the European Society for Medical Oncology (ESMO) Congress 2012, which is scheduled to begin on September 28 in Vienna, Austria.

The pharma major is about to disclose data of two major clinical trials performed on one of its largest drugs - Herceptin. The intent of these trials is to determine the optimal duration of treatment with Herceptin in HER2 +ve Adjuvant breast cancer patients. The current standard duration of treatment is established as one year. Studies are ongoing to explore the benefits and outcome of shortening current treatment duration of one year to six months (PHARE) or expanding current treatment duration to two years (HERA).

Herceptin is quite important for Roche as it comprises approximately 15% of its sales. While approximately 50% of Herceptin sales come from use in Adjuvant HER2+ve breast cancer patients.

HERA and PHARE to show final data

The final results from the two studies - HERA (Herceptin Adjuvant) and PHARE (Protocol of Herceptin Adjuvant with reduced exposure) will be presented at the ESMO. The results from these studies will determine whether Herceptin sales in adjuvant breast cancer will double or shrink substantially to half the current size.

About HERA Study

Roche and the Breast International Group (NYSE:BIG) will present the final analysis of the 5,000 patient, Phase III HERA (HERceptin Adjuvant) study. The study assessed how adjuvant treatment with Herceptin has impacted the disease-free survival (DFS; the time lived without return of the disease) of women with HER2-positive early breast cancer after completion of standard chemotherapy. Data will be presented comparing the DFS of women given Herceptin treatment for two years to those treated with Herceptin for one year. In addition, an update will be provided on Herceptin given for one year versus observation after eight years of follow-up.

About PHARE Study

The PHARE study, sponsored by the French National Cancer Institute is investigating six months versus one year of Herceptin treatment.

Discussed below are different scenarios of the results and how these are going to impact Roche's stock price

SCENARIO 1 OR BASE CASE

HERA Study shows there is no benefit of extending treatment with Herceptin beyond one year - In such a scenario, there will be no impact on Herceptin sales and hence there would be no impact on Roche's stock price.

SCEANARIO 2 OR BEAR CASE

PHARE Study shows six months of treatment with Herceptin is as good as or better than one year of treatment with Herceptin - The PHARE study is substantially large, as it has enrolled about 3400 patients and conducted trials at about 149 sites. If the study demonstrates that 6 month of treatment with Herceptin is as good as or better than one year of treatment, there would be negative implications for Roche. The data would lead to a change in the standard treatment duration of Herceptin from one year to six months. Thus, Herceptin sales could decline by about 25% from current levels. The impact on group sales would be close to 3.5%. From a stock price perspective, this could translate into a 5% negative stock price reaction.

SCEANARIO 3 OR BULL CASE

HERA Study shows, extending treatment with Herceptin from one year to two years significantly improves disease free survival - This is the bull case for Roche. If the HERA study demonstrates survival benefit of extending treatment with Herceptin, the standard duration of treatment would extend from one year to two years. We should see Herceptin sales expanding by 50% from current levels, which imply a 7% increase in group sales. The stock price may move up by 10%

The overall Risk Reward Profile of Roche Ahead of ESMO is Favorable

The different scenarios suggest that in the worst case, we could see a 3.5 % decline in Roche group sales. This would happen in the event PHARE study shows positive data. In the best case if the HERA study is able to demonstrate survival benefit of extending treatment duration, Roche group sales can expand by up to 7%. Thus the overall risk reward profile appears favorable.

It is difficult to guess the probability of which scenario is most expected, but I would recommend a buy on Roche with a price target of $54 and a stop loss at $45.

Source: Buy Roche Ahead Of ESMO