Biotech Values

[DewDiligence]

Re: Aggregate size of non-substitutable FoB market

Some of your listed sales figures are off (e.g. annualized US sales of Enbrel are about $3.5B, and annualized US sales of Humira are about $4B), but this is insignificant in the overall scheme of things. The main reason you get an unduly low estimate for aggregate FoB sales in 4-7 years is that FoB’s will likely garner more than the 15% market-share figure you assumed.

Jeff George, CEO of Sandoz, has addressed this question on NVS’ recent CC’s; many of the FoB launches were badly botched, according to George. Within the time frame you’re considering, aggregate FoB penetration of 35-40% is not unreasonable, IMO.

Moreover, although the profit margin on non-substitutable FoB’s will be much less than the margin on substitutable FoB’s, for early market entrants the margin on non-substitutable FoB’s will be comparable to the margin on typical branded biologics. From NVS’ 3Q11 CC:

http://seekingalpha.com/article/301953-novartis-ag-s-ceo-discusses-q3-2011-results-earnings-call-transcript?part=qanda

Seamus Fernandez (Leerink Swann): Can we talk a little bit about the investment behind the biopharmaceuticals portfolio inside Sandoz? When we look at some of the uptake of products in that market, it's difficult to see what kind of a return you're generating outside of an ANDA-type portfolio in the U.S.

Jeff George: With respect to returns, the returns are actually great. I mean, these are very high-margin products for us. I think it depends a lot on where you get in. If you come in late to the party on biosimilars, the returns are not going to look nearly as nice because you're going to see more pricing compression. But we feel very good about where we are there… I think there is, to your point, a disconnect between sales growth and R&D that is driven by a gap in patent expiries on biologics for the next couple of years. So the big biologics, particularly on monoclonal antibodies, we're going to be seeing patent expiries in the '15, '16, '17 period, couple in '14. So there is that gap in the short term.