Roche's Rejects May Again Rejuvenate Swiss Biotechnology Scene
By Dermot Doherty - Nov 10, 2010
Roche Holding AG’s plan to reduce costs may cast off drug discovery projects, providing a boost to Switzerland’s ailing biotechnology industry and venture capitalists seeking to create health-care companies.
Roche has already seeded a number of Swiss biotech start- ups, including the spinoff of Basilea Pharmaceutica Ltd. in 2000 to pursue antibiotic research. Actelion Ltd., Switzerland’s largest biotech company, was started in 1997 by Roche scientists to develop medicines the drugmaker had axed, including a treatment for a lung condition that now has annual sales of more than $1 billion.
Roche, the largest maker of cancer medicines, has said it plans to outline cost reductions by the end of the year to counter setbacks in research and pressure on drug prices from insurers. The prospect of researchers trying to emulate the success of previous Roche biotech start-ups is poised to generate interest among investors and venture capitalists.
“Pharma’s loss might be biotech’s gain,” said Brad Bolzon, head of Menlo Park, California-based venture capital firm Versant Ventures and a former head of business development at Roche. “Challenging periods in the pharma industry can create opportunity for more entrepreneurial managers and scientists to take risks. We’ve seen some success with collaborative spin-outs.”
‘Very Smart’
Basilea was formed by about 50 Roche scientists and executives, five experimental compounds and 206 million Swiss francs ($214 million) in funding from the drugmaker. While Basel-based Roche sold a 51 percent stake to private and institutional investors, it kept options on some of the experimental drugs. Basilea has since brought to market the first treatment for chronic hand eczema not helped by standard therapies.
“Roche was very smart in the way it established Basilea,” said Ron Scott, Basilea’s chief financial officer and one of its first employees. “Roche was able to recoup its significant investment in therapeutic areas, which were no longer its primary focus.”
According to Venture Valuation in Zurich, there are about 73 biotech companies focusing on drug development in Switzerland, compared with 77 in France, home to almost nine times as many people as the Alpine country.
Accelerating Pace
About half of the biotech companies listed on the Swiss Performance Index had links to either Roche or Novartis AG before Arpida Ltd. and Bioxell SpA were acquired last year. Investment in the industry fell to 370 million francs last year from a peak of 885 million francs in 2007. Though financing for this year started slowly, the pace has picked up, said Juerg Zuercher, head of Ernst & Young AG’s biotech unit for Europe, the Middle East, India and Africa.
The increase may be a boon for Roche. The company is sounding out venture capitalists to gauge interest in funding startups, according to Jean-Philippe Tripet, managing partner at Aravis Venture, a Zurich-based venture capital company.
Roche may fund the assets being spun out themselves or seek financing from venture capitalists to “keep a foot in the door,” Tripet said in an interview. Retaining options or equity in the new companies may be a way of doing this, he said.
While Roche hasn’t given any details on the cost-cutting program, dubbed Operational Excellence, Chief Executive Officer Severin Schwan said on a conference call Oct. 14 that it is “looking at a prioritization of our portfolio as we go forward.” Alexander Klauser, a Roche spokesman, declined to comment on whether companies would be spun off as a result.
Preclinical Experiments
Roche is more likely to drop experimental medicines that are in preclinical development or in the first of three phases of human testing needed for approval, Tripet said. Investors may be most interested in experimental cancer treatments, he said.
“Roche is the Ferrari of oncology, so if they were to spin out something in that area, VCs would look at it very closely,” he said. Roche also may opt to cut drugs in other areas such as neurological or metabolic disease, Tripet said.
Roche has about 70 compounds in clinical development, spread over seven disease areas, according to the company’s website. Half are in the earliest stage of human testing.
Carri Duncan, an analyst at Macquarie Group in Zurich, also pointed to metabolism -- an area of research that develops treatment for conditions ranging from diabetes to high cholesterol -- as a field the company may trim.
“However it’s done, it makes sense to do it thematically because they could help set up a new company with those products, as they did with Basilea,” said Duncan, who rates the shares “outperform,” in an interview.
Trial Setback
Clinical trials of taspoglutide, an experimental diabetes medicine that would have been the first product introduced in the metabolism field, were halted this year after many patients dropped out because of side effects. The company plans to make a decision on the future of the drug, which it licensed from Ipsen SA, by the end of the year. Roche had expected to ask regulators to grant marketing permission for the medicine in 2011.
The Swiss biotech industry needs products after suffering a slew of drug development setbacks over the past two years. Two late-stage clinical trials being run by Actelion failed, while Basilea said in September that former partner Johnson & Johnson was looking to withdraw the ceftobiprole antibiotic from some markets after it was rejected by U.S. and European regulators.
Speedel Holding AG, set up by Novartis scientist Alice Huxley, was one of the few successes in recent years, helping develop a shelved product that in 2007 became the first new treatment for high blood pressure in more than a decade.
Not all out-licensed compounds need to generate new companies, said Chandra P. Leo, an adviser at investment company HBM Partners in Zug, Switzerland. They may just help existing companies rejuvenate their pipelines, he said. For every 10 compounds spun out of pharmaceutical companies, at least five will likely fail because they’re subject to the same attrition rates as anywhere else in the industry, Leo said.
“Some really interesting projects end up in biotech,” he said. “Provided you find the right setup, such spinouts will inject some new life into the industry.”
To contact the reporter on this story: Dermot Doherty in Geneva at ddoherty9@bloomberg.net
To contact the editor responsible for this story: Phil Serafino at pserafino@bloomberg.net |
