Roche's $46.8 billion acquisition makes sense at first. But insurers may balk at covering some of Genentech's expensive new cancer drugs
After an eight-month struggle, drug giant Roche Holding is finally grabbing the slice of biotech pioneer Genentech (DNA) that it didn't already own. The $46.8 billion deal is crucial to Roche, analysts say. The biggest problem currently facing Big Pharma is a dearth of new drugs and potential new products in the pipeline. Genentech has both a portfolio of top-selling medications, like the cancer drugs Herceptin, Avastin, and Tarceva, and a promising pipeline.
But amid the general euphoria and the "buy" recommendations from analysts covering Roche, there are some potentially disturbing trends that raise questions about Genentech's value. The first is a push for "comparative effectiveness"—simply figuring out how drugs stack up against each other. Drugmakers typically don't do trials pitting their products against competitors', so there are limited data comparing drugs. When such trials have been done, however, the results have often been sobering for the pharmaceutical industry. The landmark "Antihypertensive and Lipid-Lowering Treatment to Prevent Heart Attack Trial" (ALLHAT) showed that cheap blood-pressure-lowering drugs in a class known as diuretics worked better than newer, more expensive calcium channel blockers and ACE inhibitors. Another trial found that older, cheaper schizophrenia drugs worked as well as or better than the newer, more costly ones.
Watching the Pennies
Payers have been quick to pounce on such results, changing their reimbursement policies to favor the cheaper, yet just as effective, drugs. And the Obama Administration is a big believer in comparative effectiveness as a means of delivering better quality, yet cheaper health care. President Obama's recent stimulus package includes $1.1 billion to perform drug-comparison trials, a measure that passed despite the objections of drugmakers.
Why is this relevant to Genentech and Roche? Because a big chunk of Genentech's sales come from its high-priced cancer drugs. In 2008, Avastin pulled in $2.7 billion of the company's total $9.5 billion in U.S. product sales. Tarceva added $457 million. But it's not yet clear how much medical value, in terms of longer lives for cancer patients, these drugs provide. It took several trials with Avastin in different cancers before enough benefit was shown to get approval from the Food & Drug Administration, for example. In advanced pancreatic cancer patients, Tarceva added only about two weeks of life compared with standard, inexpensive treatments.
Researchers and company executives had hoped that combining new drugs with different mechanisms of action would boost the effectiveness. But the second sobering trend, seen in the results of recent studies, is that the benefits remain small, at best.
In one trial, dubbed BeTa Lung, patients with advanced lung cancer were given Tarceva, which targets a growth factor receptor on cancer cells, either alone or in combination with Avastin, which interferes with the blood supply to tumors. The patients getting the combination did go for an average of one and two-thirds months longer without their tumors progressing than those just getting Tarceva. But those patients didn't live any longer. The trial "did not meet its primary endpoint of improving overall survival compared to Tarceva in combination with placebo," Genentech conceded late last year.
The disappointing results are mirrored in other trials that combine these two types of cancer drugs. A trial sponsored by Amgen (AMGN) that tested Avastin with Amgen's own growth factor drug had to be stopped early, in April 2007, because of increased toxicity. A clinical study with Avastin and ImClone's growth factor drug that was published in 2007 showed no benefit in survival time.
Roche and Genentech are hoping that a more recent trial, called ATLAS, will show better results when the data are revealed later this year. In early February, Genentech announced that the trial, which added Tarceva to Avastin in advanced lung cancer patients, was stopped early because the combination increased the time patients lived without their disease progressing. The problem is that such "tumor-free progression" often does not translate into longer actual survival.
If the data from such trials continue to disappoint, the pressure will grow to scale back payments for expensive drugs like Avastin (which costs $50,000 per year) and Tarceva ($2,000 per month). Britain has a government body, the National Institute for Health & Clinical Excellence (NICE), that looks at comparative effectiveness of drugs. NICE recommended last year that the National Health Service not cover Tarceva. The recommendation forced Roche to cut the price in October 2008.
It's possible that doctors will figure out ways to use these drugs more effectively, extending the lives of cancer patients. But it's also possible that the data will continue to show that the benefits are small. And if that's the case, the push to make better use of health-care dollars by paying less for treatments that are shown to be less effective could be a serious threat to Genentech's bottom line. When asked about these trends and this potential threat, Genentech declined to comment.