LONDON— Roche Holding AG is unlikely to pursue midsize acquisitions soon because companies with drugs in late-stage development are too expensive, Chief Executive Severin Schwan said in an interview with The Wall Street Journal.
The most recent midsize deal for Roche came in August 2014 with its $8.3 billion all-cash acquisition of InterMune, a company that had developed a drug for a deadly lung disease called idiopathic pulmonary fibrosis. At the time of the acquisition, InterMune’s drug already had been approved in Europe and Canada and was being reviewed by U.S. regulators. It received approval in the U.S. in October.
But Mr. Schwan, who long has been a vocal critic of megamergers because of their disruptive effect on businesses, said Roche was “very unlikely” to acquire another midsize company such as InterMune soon. He said the Swiss pharmaceutical giant was instead focused on cheaper early-stage biotech companies, where deal sizes run into the millions rather than billions of dollars.
“If you look at these [larger] companies, we are not off by strategic premium…we are off by multiples,” Mr. Schwan said. “What happens for late-stage assets is you get into a bidding process, and what we see, we cannot make the math work.”
In the interview, Mr. Schwan also warned that keeping the cost of combination cancer therapies at a sustainable level will become “much more difficult” when more than one company is involved in setting the price.
Currently available combination therapies in cancer involve either a patented drug plus a generic medicine or two patented drugs made by the same company. In such cases, companies strike deals with payers to keep the combined price below a certain cap, Mr. Schwan said. This is the case with Roche drugs Herceptin and Perjeta, which are used in combination to treat breast cancer, he said.
But a number of drug companies, including Roche, are running trials testing their drugs in combination with therapies from the portfolios of their rivals. If these combination therapies are considered more effective than using just one of the drugs, health systems will need to enter separate negotiations with two different companies to agree on a price for each medicine.
“Each company will talk with the payer and say [its] part is much more valuable than the part of the other company,” he said. “No doubt in [the] future we will have situations like that because companies are working together for combination therapies, so this will come.”
Mr. Schwan also said impending biosimilar competition for Roche’s best-selling cancer drugs was good for society because the system by which innovative drugs are given exclusivity for a limited amount of time “has worked extremely well for societies.” Unlike classic generic drugs, which copy chemically made drugs, biosimilars imitate complex, biologically made medicines. They are close, but not exact, replicas.
“If you don’t have biosimilars…the whole model would collapse because societies would not give you a premium [for innovative drugs] anymore,” he said.
“I’m not unhappy we have seen some delays for some of our products, but if this [went] on forever we would have a problem,” Mr. Schwan said. “Yes, it’s good we have biosimilars and that they give oxygen” to payers.
Roche’s three best-selling drugs, MabThera, Avastin and Herceptin, account for around 40% of Roche’s total revenue and are expected to face biosimilar competition in the next few years.
By DENISE ROLAND
Sept. 15, 2015