Innovation Remains Best Remedy In Drug Pricing Debate

As biopharma stocks buckle under the pressure of high-level debate around U.S. drug costs, Roche has provided a timely reminder that innovative drug development will provide the most effective means for retention of pricing elasticity.

On Monday, the company disclosed that its experimental multiple sclerosis treatment ocrelizumab has become the first therapy to hit the main endpoint in a large Phase III study for primary progressive MS. This form of the disease accounts for between 10% and 15% of all MS patients, but is devoid of effective therapies.

As such, ocrelizumab is looking like an increasingly significant future sales growth driver for Roche, capable of generating multi-billion dollar sales on a global basis. In June, the company announced that two Phase III studies in the more common form of relapsing remitting MS had hit their primary and key secondary endpoints. Full data from each of the late-stage trials will be presented at next month's annual meeting of the European Committee for Treatment and Research in Multiple Sclerosis (ECTRIMS).

In the larger RRMS market, there is a growing consensus that ocrelizumab will gain an initial foothold in second-line patients and compete primarily with Biogen's Tysabri. Roche's drug offers comparable efficacy, but what appears to be a notably superior safety profile. Furthermore, while Tysabri is dosed once a month, ocrelizumab is administered twice a year.

Until top-line Phase III data were first announced four months ago, ocrelizumab had flown under the radar of many investors and some analysts. However, key opinion leaders recently interviewed by FirstWord Pharma believe the drug to be the most exciting MS therapy in late-stage development and a potential "game-changer." Roche's decision to study ocrelizumab head-to-head against Rebif in its two Phase III RRMS studies is evidence that the company has always viewed the first-line setting as a viable opportunity for the drug, add experts.

Small but not insignificant concerns regarding the safety of leading oral agents – Biogen's Tecfidera and Novartis' Gilenya – could help to smooth the passage of ocrelizumab into front-line usage if full Phase III efficacy and safety data are as compelling as Roche's top-line announcement suggests. However, it is the innovative quality of ocrelizumab – in demonstrating a historic breakthrough in PPMS – that could also enhance usage of the therapy across both forms of the disease.

Setting a benchmark in PPMS strengthens the argument for its mechanism of action, which is likely to promote a 'halo' effect among the neurology community, suggest analysts at Bernstein. Assuming the Phase III data do not disappoint, "Roche can argue convincingly for a high price outside the US, resist payers in the US, and own the (primary progressive) segment, without the competition that fragments the $19 billion relapsing remitting MS global market," they argue.

Analysts at Credit Suisse take a similar view. While their base case modelling scenario for ocrelizumab assumes a $50,000 per year price tag in the US, the "halo" effect of efficacy in PPMS would allow Roche to charge a higher price – they cite $70,000 per year – across both indications.

We don't need reminding – particularly given accusations that a biopharma bubble is ready to pop – that sell-side analysts can sometimes be overenthusiastic. However, success for ocrelizumab where all other drugs have failed should provide Roche much greater insulation from the effects of any US drug pricing backlash. Innovation will continue to rule.