With the purchase of the 44% of Genentech (DNA) it didn’t already own in March '09, Roche gained full control of some of the world’s top selling biologics and at the same time transformed itself into an oncology focused company, with greater than 50% of its drug sales for oncology indications. One could say Roche is now the world’s largest biotech company. It sports a forward PE of 15, a premium to its peers. This is due in large part to its young and robust pipeline. Patents for its major drugs Rituxin and Herceptin do not expire until 2015. Even then, the path to approval for biosimilars in the US is still uncertain.
With profits so big in biologics drugs, every large Big Pharma has now turned their focus on biotechnology. It is quite possible Roche will face competition for its drugs from branded biologics before biosimilars are approved.
What sets Roche apart from the rest of Big Pharma is its unique integration of drug discovery along with its less heralded diagnostics division. While the Diagnostics division makes up only 20% of total sales, its contribution to the company is considerably larger. Combining a Diagnostics division allows easy access by drug researchers to the latest and most advanced equipment and analysis tools for performing experiments. Feedback between the two groups allows for the creation of tools that fit the need of researchers within and outside the company.
More importantly, within the last decade, the pharmaceutical industry has made real advances toward the delivery of personalized medicine based on the use of biomarkers. True, biomarkers have been used in medicine for quite some time now; in particular, measurements of PSA levels for detection of Prostate cancer, HbA1c levels for diabetes, and triglycerides for heart disease. These, however, were not definitive measurements for the detection of disease.
More recently in oncology, biomarkers have become commonly used throughout the drug development process due to the advent of highly targeted therapies. A highly cited case is the development of Herceptin (trastuzumab), a HER2 targeted antibody, by Genentech. Beginning with patient recruitment, Genentech used HER2 gene amplification as a main criterion in entry into the clinical trials. Without this, Genentech would not have been able to see the effect of its drug on breast cancer patients in the trials it conducted.
Working with the FDA, Genentech partnered with privately held diagnostics firm Dako to have a HER2 companion diagnostic kit approved at the same time as Herceptin. Together, the drug and the companion diagnostic changed the face of breast cancer treatment.
Today, the co-development of targeted drugs along with companion diagnostics is a very hot area of development. The FDA released a draft concept paper in 2005 which would require sponsoring drug companies to commit to the co-development of companion diagnostics “very early in the drug development process”, though it received considerable push-back from industry, claiming such a process would be too costly. A new, refined draft is expected from the FDA.
In a 2007 paper from a workshop held between the FDA and industry, FDA officials continued to throw their weight behind drug-diagnostic co-development, illuminating some possible paths for such an approval. In one case, a company working on a project discovers a clinically relevent mutation in Phase II trials. It then discusses with the FDA a method to proceed with a prospective Phase III using a laboratory diagnostic test, with the clinically validated test ready upon drug approval. A second case is similar to the one in the 2005 concept paper. It involves early identification of a relevent biomarker and co-development of diagnostic tests along with the drug from early stage to post-approval.
Whichever the case may be, Roche is perfectly situated to benefit from these developments. It has the in-house expertise to develop diagnostics from start to finish. A case in point is its B-RAF compound, PLX4032 from Plexxikon, now in pivotal trials. This is a specific inhibitor of the mutant B-RAF V600E and is currently being tested in melanoma. B-RAF V600E is found in approximately 60% of this very deadly form of skin cancer. From the start, Roche has used diagnostic testing to select patients for its clinical trial. In a Phase I trial, patients without the V600E mutation treated with PLX4032 had no response while 70% of those with that mutation experienced tumor shrinkage.
To this end, Roche is planning on launching PLX4032 along with its companion diagnostic. The beauty of a companion diagnostic is its predictive value. Knowing which patients are most likely to benefit from a drug allows smaller clinical trials to be conducted. And though smaller, these trials are likely to have a better chance of success. The trials are also more humane, excluding patients who are unlikely to benefit and are better off trying other treatments.
Healthcare providers - the payers - are certain to embrace companion diagnostics in the quest for personalized medicine. No longer will they have to pay for drugs that only work on a random number of patients. Now, the drugs they pay for are very likely to benefit the patient. It’s a win-win for all involved.
It may seem that drug companies will lose money as the increased use of biomarkers slices up their target population. I do not believe this will be the case. The advantages afforded by personalized medicine will allow these highly targeted and efficacious drugs to command a premium in the market; in addition, revenue will come from the use of diagnostic tests.
Roche has embraced the personalized medicine paradigm. The future is here.
Disclosure: Long RHHBY.PK