Too Late? Biocon And Mylan's $7 Billion Bet

| About: Biocon Ltd. (BCNQY)

Summary

Biocon and Mylan are close to success with their trials for a biosimilar version of Roche's Herceptin, a breast cancer drug.

Roche is however, testing a combination drug - trastuzumab and pertezumab - which may be more effective than Herceptin alone.

The new drug would limit the market for Biocon - Mylan's biosimilar trastuzumab in the US.

Last week, Biocon (OTC:BCNQY) and Mylan (NASDAQ:MYL) announced successful trials for their biosimilar trastuzumab. The two companies have been working together to jointly develop a biosimilar trastuzumab, which treats metastatic breast cancer. The successful trials for the product came as part of a Heritage study, which showed biosimilar trastuzumab working as well as the branded trastuzumab product Herceptin sold by Roche.

Biocon-Mylan is an early filer for the trastuzumab biosimilar in the EU and US markets. An estimated four other players are also in advanced stages to develop the biosimilar drug, raising the possibility of intense competition for the market. But Herceptin is a US$7bn drug globally and Biocon-Mylan is an early filer, making a quick payoff here pretty likely - when asked about the potential, Julie Knell, a spokesperson for Mylan, told me that their product "has the potential to be the first submission of..biosimilar trastuzumab in the US."

A new drug from Roche

However, recent developments in metastatic breast cancer treatment have muddied the field. Roche (OTCQX:RHHBY) is conducting an Aphinity trial for a combination drug for the treatment of metastatic breast cancer, which combines a synthetic compound pertuzumab (Perjeta) with the older Herceptin - trastuzumab. The trial is likely to be successful - early data points from the trial suggest that the incidence of invasive disease for patients enrolled in the trial have been lower than expected. Roche has also recently received a boost when the National Institute for Health and Care Excellence (NASDAQ:NICE) in the UK published its final guidance this week on January 3, which has endorsed the use of Perjeta (pertuzumab), in combination with trastuzumab and chemotherapy.

What does this mean for Biocon's market?

Despite the possibility that Biocon and Mylan could get 180-day exclusivity with this drug in the US as first filer (biosimilar trastuzumab is already being sold in developing country markets including India), the likely success of the combination drug trials and the launch of Roche's new combination drug will limit the market size for the biosimilar.

The chances are high that:

1) Roche will subsidize Herceptin, now that it has a new, expensive drug in the market to help it recoup research costs and profits. This will limit the success of Biocon-Mylan's biosimilar trastuzumab and bring sales down.

2) The treatment capacity of the new combination drug will set a new bar for the treatment of metastatic breast cancer, and demand for Herceptin and its biosimilars will shrink, reducing the overall market. Roche will remain the dominant player for this treatment until a new better alternative emerges. How this impacts Mylan and Biocon's outlook for FY17 and FY18 remains to be seen, as the company updates its forecasts.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

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