Roche Holding AG (ROG) Earnings Call Transcript & Summary

We'll just continue. [Foreign Language] Shall we directly continue? Or do we want to make a break? Is it fine to continue? Okay. Good. Excellent. So can I ask my colleagues to come up to the table? And can we take the first question here?

Do we have a mic?

Richard Vosser from JPMorgan. Two questions, please. First question, thanks for the biosimilar impact. But thinking about some of the international operations on some of the products, obviously, weakness in China because of the destocking. So how should we think about the outlook of Perjeta, Herceptin, Avastin, Rituxan in the international operations? Specifically Perjeta on the NDRL, should we think of the bolus grade like Herceptin did? And then how should we think of the others, Herceptin, Avastin, Rituxan? Second question, just going back to the -- or going to the net debt to total assets. It's now considerably below, I think, the original target range, whether that was 10% or 15%. So how should we think about you putting to work the capital to restore the balance?

You want to start?

Yes, sure. International operations and -- you said Perjeta, Avastin, Herceptin, MabThera? Okay. Now I'm going to add Alecensa because Alecensa and Perjeta were both added to the NRDL in Q4. And although the prevalence of ALK positivity is not necessarily higher in China, there's just -- there's a tremendous amount of lung cancer in China and so the number of patients that can benefit is really quite large. So we think we'll still have -- we think we'll have some underlying growth, although most of the growth in MabThera and Avastin and Herceptin in China has probably already happened. But Perjeta and Alecensa should be good growth drivers since they just received the listing, and that does dramatically expand the number of patients who are eligible and can receive it. And then otherwise, in the rest of international, there's some gains and losses. There are some biosimilars or noncomparable biologics in some markets. And so we have some negative markets and then we have other markets where it's really more of the store -- the effect of Perjeta and Kadcyla getting into the adjuvant therapy. Also, products like Alecensa and other products that we've launched in the last decade that are really just starting to penetrate some of those international markets. So we think it should be a reasonably good year in international. 15% is hard to replicate, but we feel good about it overall.

Net debt to total assets?

We're now at 3%. So justified point. Well, I think we have set discussions since I joined the company 9 years ago. And every year, I think there was this concern that we would become net cash positive. I think so far, we've put our money to work and really found solid acquisitions, good acquisitions, I would even say, even in some cases, which gave us good returns. And I think really in a period where we have -- where we have a good growth, I think we will find opportunities here to move forward here.

It's a good problem to have. And we'll cross the bridge when we have to budget, right? Good. Please.

Sachin Jain, Bank of America. A couple of questions, please. Firstly, on the CHF 4 billion, just another part of it. What portion of that is the U.S.? And what's your level of visibility on the erosion rate you've assumed there and level of confidence around that given there's not a lot of precedent as it sits? And second question, you've referenced a couple of launches through this year, risdiplam, satralizumab, Tecentriq in liver, across all regions. To what extent are those launches reflected in guidance versus offering upside? Background to the question, obviously, is your prior launches, OCREVUS, Tecentriq, HEMLIBRA, drove upgrades through the last couple of years. And then the final question is on gene therapy. No mention of Sarepta, so I wonder if you could talk about that licensing deal towards the end of the year, your level of excitement and broader gene therapy intentions beyond that deal.

If I can make the point, it's important to us that you say roughly CHF 4 billion.

Yes. That's what we're guiding for.

Yes. I mean, we really nailed it. I think the point is we really nailed it in 2019. We said the impact would be about $1.3 billion and it was $1.3 billion. We're not always that good. And so...

Roughly.

Yes. We think it's roughly CHF 4 billion, we think -- of which, I think, as Alan said, we think the impact ex U.S. will probably be similar this year as last year, which was about $1.2 billion, so the rest is roughly -- the rest is the U.S. In terms of the visibility on that and how confident are we, I mean I think there's a fairly decent range on it because it's still early days. So keep in mind that there were 2 products launched: one biosimilar to Herceptin; and one to Avastin in late July. They didn't really get momentum with contracts and all that sort of thing really until the fourth quarter. And then there have been several other launches since that time, just in like November, December. There's additional launches happening kind of in Q1. So it's still pretty early. I think what we would say is it's consistent with what we've said all along. We expect the impact in the U.S. to be similar to Europe, maybe a little better, maybe a little slower. I think it's really very -- that's still our outlook. And yes, so far, that's been it. You asked about whether the launches are in the guidance, is there a potential upside? There's -- we always like to think there's upside. I think if you consider the launches we're talking about, risdiplam is likely late first half. I think we've said May PDUFA date. So if we launch in May, its ability to drive a massive upside in the year, given that it's not given up front. OCREVUS, one of the effects we had there is that as soon as a patient's dosed, they just got 6 months of therapy. Risdiplam is dosed daily. So I think with risdiplam, with satralizumab coming later in the year, with the HCC, it's a big indication. But the biggest demand for that will likely be outside of the U.S. because liver cancer is relatively less common in the U.S. and the first approval is likely to be in the U.S. So all that to say is while we -- while there is a range around those launches, I don't think they're going to -- I don't think they're going to be a big variance driver in 2020. I think it's really more the underlying strength of the ongoing launches like Tecentriq, OCREVUS, HEMLIBRA continuing. So does that answer? Sarepta, we're super excited about. I think the timing, that's going to depend a little bit on what the further development program looks like. There's been very promising data. I mean remarkable results in just a few patients, the kind of results that you just wouldn't expect to see in Duchenne muscular dystrophy. That's what made us so excited about it. We're -- we remain incredibly excited about bringing that to patients around the world. But it's not a -- we don't think that's a 2020 phenomenon. And then finally, our intentions in gene therapy are -- we have big intentions. In fact, I've spent a significant amount of time, several of us have, with leadership at Spark already this year, sort of helping plan how do we use the resources, the worldwide resources of Roche to help accelerate the programs they have ongoing, additional investment for Spark in Philadelphia to extend into new disease areas? And I think we expect big things about -- from Spark in the future. But again, these are more -- the majority of those things are new concepts that we're investing in, and so they won't have impacts in 2020.

Let me just bring it over here.

It's Michael Leuchten from UBS. One question on the inventory reductions in China, timing and rationale, both diagnostics and pharma? And then, Bill, in your commentary around hematology, you didn't mention Polivy, the POLARIX trial for 2020. Is that still a data point for this year or not?

Do you want to talk about inventory?

Yes, sure. So we decided in Q4 also to reduce the inventories in China. We see a lot of pressures in China in terms of the 2-invoice policy. You may have heard about that. So basically, most of our business in China goes through distributors. And the Chinese government has implemented this 2-invoice policy, which means that between us and the end customer, there can only be 1 distributor. This used to be very different in the past. So what we did, we did the prudent step and we said, okay, let's reduce inventories rather than get into negotiations with our distributors. I think that's the best thing for the future.

And in the pharma area, we went from 26 days to 16 days. And largely, what created that was our volumes increased substantially. I mean we had a 38% sales growth. Our volumes were even significantly more than that. And we reevaluated how much safety stock we needed in the channel because when you have higher volumes, you don't need as many days. So we basically -- we thought about it, and we said we might as well take that as we come to the end of the year and go ahead and line it up in a place where we'd like to be. The Polivy study you mentioned, so this is the study of Polivy with R-CHP, which -- instead of R-CHOP, which is the standard of care in diffuse large B-cell lymphoma. It's in the curative setting. It's a big deal if we can replace the vincristine with Polivy and drive what we hope will be better tolerability and a higher cure rate. And so this is really the big study for Polivy. And the reason I didn't mention it is because we'll only get the results, I think, it's like end of the year, maybe Q1 of 2021. So it's possible it will happen in 2020, but maybe more likely, we'll be talking about it around this time next year or shortly after. Thanks for the question.

Good. I suggest we go over to this side. Yes. Very good, please. Thank you.

Mark Purcell from Morgan Stanley. A couple of questions. Just in terms of, firstly, risdiplam, the opportunity and what we should think about from an uptake perspective. We understand that about 40% of patients diagnosed with SMA in the adult setting don't like to take the drug because of the intrathecal delivery. I think, Bill, you mentioned that. So is there a sort of big sort of unmet demand here? And how do you see diagnostics playing a role in growing that market? The second thing is on OCREVUS. Obviously, there's incoming competition but you have plans to reduce the infusion times. You also have your own [ subcut ] program as well. So could you help us understand the plans and timing behind defending and building the OCREVUS franchise? The third one is on the bispecific, the CD20/CD3. You said in the press release, there's a decision to be made soon. The 2:1 may be a better refractory option, fast route to market, the 1:1 may be safer, better for earlier-stage patients. So it's obviously a competitive environment. You're currently ahead. You may not stay ahead. So just what's going on there? And how should we think about that opportunity? And the last one is just a quick one. Liver cancer, Tecentriq in combination with Cabometyx. The data's come out in Q3, the COSMIC-312 trial. So how do think about having Avastin and Cabometyx as partners on top of Tecentriq in this setting? Will there be patients or countries or opportunities where one might be an advantage versus the other?

Great. That's quite a list. So let's start with risdiplam. Yes. I mean, it's fascinating a field like spinal muscular atrophy, where essentially, there were no products, what, 4 years ago, there was no medicines. And now we're actually in the wonderful position that there's actually 3 choices or soon will be 3 choices. And they couldn't have more different modalities with an intrathecal administration several times a year versus a gene therapy, which is onetime but has certain limitations in terms of age, in terms of viral antibody positive, et cetera, and then an oral daily. It seems like each of the medicines is very efficacious, so they have that in common, but there's very different patient populations. So type 2 patients, often, they don't present with symptoms until they're toddlers or older. Type 3 patients sometimes don't present until later yet. And then there's also this complication around what benefit can you provide? In other words, if neurological damage has happened, can you repair that? Or are you really just preventing further damage? And so -- and we and the other companies have been trying to figure out as much of this stuff as fast as possible in types 1, 2 and 3, all at the same time. So I would say that I think there's -- it's going to take another decade or 2 before all of this is worked out and like which types of patients should get which medicines in which setting. But I think there's a large opportunity for risdiplam today because there are many patients who aren't going to be eligible for one of the other therapies. There is the fact that with an oral therapy, you have an opportunity. From a payer standpoint, you've got an immediate ability to have a therapy. You don't have a big price tag upfront. There's the fact that we will have data. We'll have more type 2 and type 3 data than the other therapies. We've got patients out and even -- including patients in their 20s in the SUNFISH studies. So I think overall, we're going to have a really good regulatory package and a great medicine to bring. And I mean, I haven't been very good at predicting the uptake of -- I didn't know -- I knew OCREVUS was going to be really big because -- but I'd say HEMLIBRA has surpassed all the market research we did. Normally, you do market research, and then you adjust it down because market research is sort of a bias. You're asking about this thing, and then they sort of -- but with HEMLIBRA, the actual uptake has far surpassed the market research. On risdiplam, I think it's a difficult 1 to call. And I'm glad we have a lot of really excellent analysts here who will help us with that, but I think it's going to be very meaningful. OCREVUS, we have completed a faster infusion study. We know it can be dosed about twice as fast with an IV infusion. Right now, it's usually 3.5 to 4 hours, can be more for a first infusion. And we think we'll be able to deliver that dose in 2 hours. So if you think about it, a 2-hour infusion twice a year, which is about as often as an MS patient sees their physician, it's a pretty good way to deliver a very efficacious and well tolerated therapy. We're just going to be going -- we're not going to be competing per se. We're going to be going out and talking to people about the benefits of OCREVUS and what it's doing for primary progressive patients, relapsing patients, the impact it has on the long-term with disability progression, with the well-characterized dosing. And we think that OCREVUS is going to continue to grow for a long time. CD20/CD3. I'm not going to say very much about it because it's still very much in the works. It's a very exciting field. We have 2 -- looks like 2 really excellent molecules. And they have different sorts of attributes so far, what we're seeing. But we haven't -- I don't think we've maxed out yet on the efficacy of mosun and we haven't hit -- we are continuing to work with the dosing profile of the 2:1 and continuing to get gains on tolerability. So it's hard to call and say, oh, mosun is going to be the front line and 2:1 is going to be refractory because those are -- that's a plausible hypothesis. But I think it would be prejudging. We'll follow the science, and we expect to maintain our lead, though. And then liver cancer. You asked about Tecentriq plus Cabo. It's all going to be about the data. Let's see it. We welcome it. Tecentriq is an excellent cancer immunotherapy. Cabo is a really compelling medicine with several applications, and we can't wait to see the combo.

If you just continue in this whole perhaps -- just hand over. Good.

Yes, Richard Parkes from Deutsche Bank. Firstly, obviously, thanks again for quantifying the biosimilar impact this year. I wonder if you could commit to whether you think this is definitively going to be the year of maximum pressure from biosimilars. I know you've obviously got European Avastin biosimilars launched this year. I just wonder how you think about that erosion. And maybe you can give us a number of -- what that number would be in 2021? Or maybe that's too cheeky. The second question is just on Tecentriq in adjuvant lung cancer. I think at the Pharma Day in September, you had those 2 trials potentially reading out this year, but they haven't been mentioned in the presentation. So could you just talk about where we are in terms of interim analysis there? And where you think you are versus the competition in adjuvant lung? And then final question on HEMLIBRA. You've highlighted the strong initial uptake in the initial European markets and the noninhibitor setting, but the sales at the moment look quite modest. So could you talk about the reception and then compare and contrast the uptake and reception from physicians to the U.S. experience?

Yes. So the first question on biosimilar impact. I mean, I think it's been evident in our modeling for some time that the year of maximum impact would likely be '20 or '21. Now I haven't answered anything because you sort of had that in your -- honestly, I mean, I'm going to give you an answer that might seem sort of obvious, but it sort of depends on what the ultimate impact is in '20, whether '20 is the maximum. If it's bigger in '20, then it's going to be less in '21. And so -- and the roughly, I would heartily agree with. So let's wait and see. Maybe by midyear, we'll have a better idea of whether it's -- but in either case, I think what's most exciting is with the trajectories from the products we've already launched and the additional ones we're adding, I think we get increased optimism that we can continue to grow through it. Tecentriq and adjuvant lung. Yes, the trials are all on track. There's a potential, depending on the level of efficacy, that we could hit an early readout in 2020. And we've been anchoring on the base case with the final analysis in 2021, but it's possible. And we think we're at least equal or ahead of competition, so we look forward to the results there. These things are somewhat unpredictable, but we hope we'll have a good benefit there. HEMLIBRA EU uptake. Yes. In noninhibitors, because the unmet need is not as high, obviously, as the inhibitor patients, I think the Europe -- the system, the health care system in Europe has been a little slower to respond to it. We see all the same dynamic in Europe as the U.S. in terms of the attractiveness for patients. We don't see any fundamental reason why it won't do as well in Europe as the U.S. ultimately. But there's been just maybe a little slower start in some major markets. Germany is one. We think there's some ways about how the factor is reimbursed that gives pretty big economic incentives to the hemophilia centers. But we think that the compelling profile of HEMLIBRA will ultimately prevail in that.

Let's just move on.

Sam Fazeli from Bloomberg Intelligence. Just 3 questions. One, following on from Richard's on Tecentriq in adjuvant. Obviously, we had the failure of the monotherapy in bladder cancer. Is there anything you want to comment on in terms of what that might mean for -- obviously, we all hope that the lung and renal monotherapies will read out positive? But obviously, it will raise the question about what -- whether the right term -- test is being conducted there. And on the biosimilars, just for some of us who cover some of the other companies that do -- are launching the competitors, could you give us a feel for what your expectations are between volume and price impact? And no specifics, but if there is a split, 50-50, what are you thinking in terms of the reduction? And then lastly, I saw a headline pass with the risdiplam pricing. I'm not sure, I'm not going to attribute the word aggressive to anyone because I didn't actually hear it. What does that mean? Right. But what does that mean? How does that -- we know what the price of the current drugs are roughly per annum on their lifetime, et cetera. What does -- give us some color, if you may, please.

Yes. And just to clarify, so when I was asked about that, I talked about what we've done in other medicine launches and somehow it ended up that we're going to be aggressive there. So we're really -- we don't typically comment on the pricing of a medicine before we launch it. I think the only thing I would say is that we will stay true to our values, which is we want to make sure that it's perceived as a good value, not just by us. It's always easy for -- yes, that's easier for us to perhaps perceive it. It's really important for us to talk with the patient families, the insurance companies and see what they believe is the value, and we'll make a good decision on that. Biosimilar. The impact will be primarily on a volume impact, not price because we -- yes, we don't have major changes on our prices. And so the main impact is that we lose the business.

And Tecentriq [indiscernible]

Yes, sorry. You started with that, didn't you? So...

You're talking U.S., I assume.

Yes. So there are some countries where statutorily, they force a price cut when a biosimilar launches or when a patent expires. And so some of that has already happened. But then once the biosimilars enter, then it tends to be more of -- they come in with big discounts. And yes, we lose the volume.

And the number, when we can provide the number roughly for the half year in Europe after 2.5 years in the market, we have to make an impact of like 1/3, maybe it's priced at 2/3 [indiscernible]

Okay. And then you asked about the -- so the metastatic -- sorry, the muscle-invasive adjuvant study for bladder cancer with Tecentriq. We recently announced that we didn't hit the primary endpoint. And so of course, we have that same question. What does this seen about -- is this a good prognostic, an accurate prognostic for the opportunity to do good in other adjuvant forms? And we also asked that question beforehand because it's always important to get the answer before the result's in. And basically, what we were told is, hey, I wouldn't put too much weight on the bladder cancer study because bladder cancer, even in the metastatic setting, there's a lot of patients who don't benefit. And so I think that lung and melanoma, those may be more of, I guess, the bellwethers for the impact of cancer immunotherapy in adjuvant, and that's why we're very anxious to get the lung result.

There's also 1 question on the phone.

Okay. So perhaps we can take a question from the phone in between. Can you connect us?

The first question from the phone comes from Tim Anderson from Wolfe Research.

A couple of questions. The -- just on Alzheimer's, you have gantenerumab and the DIAN 2 trial. And I'm wondering if you can give us your perspective on that as something that should be reading out very near term. Do you view that as a trial that's extraordinarily high-risk or a medium level of risk or what exactly? And then another question on etrolizumab. Bill, I think I heard you draw parallels between that and some big recent launches like HEMLIBRA and OCREVUS. Does that signify that you're highly confident in the outcome of those results? Or is that simply just a reflection of what the theoretical market opportunity is for a product like that without necessarily meaning that you're highly confident in the outcome of the Phase III trials?

Alzheimer's -- so the DIAN study is a -- it's an independent third-party group that's running a study in familial Alzheimer's. It's a rare inherited form, and it includes a medicine from Eli Lilly as well as gantenerumab. And I think there's -- I want to say 87 gantenerumab patients in the study. So I mean by definition, it's an exploratory study. In fact, most of these patients, they started on the low dose, which is about, I think, 1/4 of the current dose. And so I think based on a number of those factors, we think it's quite a high-risk that it would read out with a positive result. It might yield something interesting. But to hit statistical significance with a small in would be, I think, unusual. And as such, we haven't really factored it into our main plans. But we hope it will offer some clues and some useful information. In terms of etrolizumab, I think -- we think it's very likely that the mechanism works because there's another program, I think it's Entyvio that has an anti-integrin in IBD. That molecule, I think, is closing in on $4 billion in annual sales. And so I think Entyvio addresses alpha 4 beta 7 and etrolizumab hits alpha 4 beta 7 and another integrin called alpha 4 beta E. So we don't know yet what the significance of that dual mechanism is. In fact, the Phase IIIs will kind of answer that question. We had good Phase II data, and that makes it something that we think is very promising. We're pretty confident it's going to work. The question in ulcerative colitis and Crohn's disease is, how well does it work? And these diseases have been really tough over the years. There have been a lot of good molecules that have gone in, had Phase II data and then missed on Phase III or disappointed on Phase III. So I think -- we think it's going to be -- I mean, we hope that the clinical trials will be positive and strongly positive. We've done everything possible to make this a really important medicine in terms of the formulation. We'll have a once-a-month subcu with an auto-injector. It's -- we're setting it up for success, and now we've got to wait for the Phase III results. Thanks, Tim.