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Weekly Healthcare Notes: Pfizer And Roche Holdings
The past week has been a handful of events for the healthcare sector impacting many healthcare companies under our coverage. Pfizer ( PFE ) announced that its largest selling drug Lyrica exhibited similar efficacy as Levetiracetam, a conventional treatment, in reducing the most common type of seizures in epilepsy patients. The world's largest drug maker also announced closure of an R&D facility along with lay-offs as it continues to trim its R&D costs. Meanwhile, Roche Holdings ( RHHBY ) received a much anticipated FDA approval for its blockbuster potential breast cancer drug, Kadcyla, widely known as T-DM1.
Lyrica, a part of Pfizer's central nervous system ( CNS ) franchise, is widely used to treat fibromyalgia, a diabetic nerve pain and neuropathic pain. It is also used as an add-on drug to treat seizures in epilepsy patients even as Pfizer has been trying to expand the drug's use as a mono-therapy for epilepsy patients.
Pfizer's plans hit a road block after the drug's extended-release formula failed to exhibit strong efficacy in 2012. However, results of a separate clinical study now raise hopes as immediate-release formula of Lyrica exhibited similar efficacy as Levetiracetam (Keppra) in treating epilepsy patients whose seizures have not been adequately controlled by previous treatments. According to the clinical data, the drug reduced 28-day seizure rates in patients by at least 50%. The drug currently garners about $4 billion in revenues each year and we expect sales to keep increasing gradually mainly due to expansions to other indications including epilepsy.
In a separate event, Pfizer announced that it is closing down CovX operation in San Diego, which will in turn result into lay-off of nearly 100 employees. The move comes as the drug maker is striving hard to manage its costs in a flurry of patent expiries. Pfizer lost patent protection for its largest selling drug Lipitor in Nov 2011, putting at risk about $10 billion even as it is slated to lose another $10 billion in next 2-3 years due to upcoming patent expiries. Due to these patent expiries, the company took several other measures including increase its focus on core pharma business and improve pipeline along with reducing staff. Continued measures like this could lead to an upside in our price estimate as R&D costs could decline more than we anticipate.
Roche has been investing heavily in its R&D program focusing mainly on oncology drugs (Read Roche Defends $47 Value With Strong R&D Pipeline ) and has started to reap the fruits now. After receiving the regulatory approvals for blockbuster potential drug Perjeta in Q4, it has secured FDA approval for another major pipeline drug, T-DM1 or Kadcyla. Both of these drugs target HER2-positive breast cancer. While approval was widely expected, the good news was that the label allows for use as a front-line drug to treat HER-2 positive metastatic breast cancer.
The launch of T-DM1 or Kadcyla will further strengthen Roche's position in the oncology market where it already has a formidable presence with a range of successful products such as Avastin, Herceptin, and Rituxan. They are some of the world's largest-selling cancer drugs with each clocking over $5 billion in sales. With the strong efficacy exhibited in clinical trials, we expect the drug to garner more than $1 billion in peak sales and drive the revenue growth going forward.
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