ViewPoints: Why the aleglitazar setback will increase scrutiny on Roche’s R&D abilities outside of oncology

Few industry observers would question the status of Roche as the most successful player in the oncology market over the past two decades. However, will Wednesday's decision to scrap Phase III development of the experimental diabetes treatment aleglitazar raise further questions as to the company's ability to develop new therapies outside of the cancer segment?

Insight, Analysis & Opinion

An important caveat is that few analysts were expecting aleglitazar to succeed, and many had chosen not to forecast revenues for the product due to a high number of previous failures within the same class. Nevertheless, analysts at both Goldman Sachs and JP Morgan indicated that the decision to terminate aleglitazar would have some negative impact on non-oncology R&D sentiment at the company.

Following other recent Phase III setbacks in the cardiovascular and metabolic space – the dyslipidaemia treatment dalcetrapib (terminated in May 2012) and the diabetes therapy taspoglutide (terminated in September 2010) – Goldman Sachs analyst Keyur Parekh suggested in a note to investors that questions will be raised "about Roche's decision to remain in this therapeutic area."

JP Morgan analyst Richard Vosser provided a somewhat harsher assessment in his note to investors, suggesting that Roche's third Phase III cardiovascular/metabolic setback in three years could lead some investors to question the company's ability to develop new products outside of oncology.

Between 2006 and 2012, Roche secured six new molecular entity (NME) approvals from the FDA – a decent record in comparison to some Big Pharma rivals. Of these, three were oncology products (Zelboraf – 2011, Perjeta – 2012 and Kadcyla – 2012), all of which stemmed from its Genentech division, and the last non-oncology approval secured by the company was Actemra – for rheumatoid arthritis – in 2009. With Actemra discovered by Chugai, however, and another of the NMEs approved during the period being the Genentech-discovered Lucentis, only one new product approved by the FDA since 2006 – the long acting erythropoietin Mircera – came from Roche's 'internal' R&D setup.

Thus, any negative sentiment towards Roche's current non-oncology R&D efforts intersects neatly with the recognised non-productivity of its internal research. This is hardly news to Roche investors or management; the 'reverse takeover' of Roche's pharmaceutical business by Genentech in 2009 was a "brilliant" move to shape an innovation culture at the Swiss company, Bernard Munos - founder of the InnoThink Center for Research in BioMedical Innovation – previously told FirstWord. See Spotlight On: R&D management changes at AstraZeneca – disruptive innovation or just disruptive?

Munos cites the challenges that Roche's internal R&D setup has faced over the past decade as sensible rationale for this decision, with the closure of the drugmaker's Nutley facility last year both a symbolic move and proactive attempt to create a company-wide innovation culture. Furthermore, Roche appointed John Reed, former CEO at Sanford-Burnham Medical Research Institute, as head of Pharma Research and Early Development (pRED) in January.

Set against this backdrop, another late-stage setback is an incremental negative for the company. That said, Roche's successes in the oncology market – a therapeutic segment where many other large cap players have sought to replicate the company's achievements – have bought the drugmaker the required time to implement long-term changes within its R&D structure. This has been driven not only by the longevity of key cancer drug franchises such as Rituxan, Herceptin and Avastin but Genentech's ability to deliver second-generation products (i.e. Perjeta and Kadcyla) that are causing analysts to be increasingly bullish that Roche can withstand any future biosimilar threat. See ViewPoints: Roche banks on disruptive innovation to counter competitive headwinds.

To read more ViewPoints articles, click here.