Sector specialist Claus Henrik Johansen has visited four companies included in Danske Invest’s global and European equity funds. Here is his update.
Roche also has several exciting products in its pipeline, such as Tecentriq (atezolizumab), which is an immunotherapy product that targets several forms of cancer, such as bladder and in the future perhaps lung cancer.
I recently spent several days in the City of Light, Paris, and the Swiss city of Basel, which also borders onto Germany and France. I met management from the four pharmaceutical companies Shire, Roche, Sanofi and Novartis, which Danske Invest has invested in. Here are the main points from my visit:
Shire merger could produce synergies
Shire’s core business is ADHD medicine, gastrointestinal drugs and enzyme replacement therapies. Shire spends the cash flow this generates on developing medicines to treat rare diseases. The company’s business model is relatively protected against sudden competition, as specialist knowledge and capacity is required to manufacture these drug treatments.
In Basel I spoke to Shire’s CEO, the Dane Flemming Ørnskov. Our discussion included the recently completed merger between Dublin-based Shire and the profitable biopharmaceutical company Baxalta, which Shire acquired for USD 32bn.
The merger could prove positive for Shire, as there are a number of potential synergy effects. In particular, the combined sales department will be considerably stronger, increasing the opportunities for Shire to market and distribute its drugs. Another, but just as important, aspect of the merger is that Shire should be able to cement its position as market leader in the field of rare diseases, including haemophilia and immunoglobulin (the dominant antibody in the immune system).
Roche has a strong pipeline
Swiss Roche is the market leader for several types of cancer treatment, such as breast, stomach and intestinal cancer. During my visit to Roche I spoke to Dr. Severin Schwan, CEO of the Roche Group. While Roche is currently the market leader for cancer treatments, Schwan cast some doubt on whether the return on developing new cancer treatments would be just as attractive in the coming years. This is because cancer is the therapy area that attracts most investment – which will eventually depress prices. However, Dr. Severin Schwan was in absolutely no doubt that Roche was in a strong position, with a very differentiated and competitive product portfolio.
Roche also has several exciting products in its pipeline, such as Tecentriq (atezolizumab), which is an immunotherapy product that targets several forms of cancer, such as bladder and in the future perhaps lung cancer. Tecentriq was also approved on 19 May as a treatment for metastatic bladder cancer.
Finally, Roche is developing a new and interesting drug for multiple sclerosis (ocrelizumab) that allows the patient to be treated just once every six months. As the product is so effective, the extended dosage interval greatly improves the patient’s quality of life.
Sanofi is more than diabetes – which investors tend to forget
If you follow the financial markets and media closely, you may easily get the impression that Sanofi is solely involved in the treatment of diabetes. However, that is far from the truth. Sanofi in fact leads the field in enzyme replacement therapies, plus the French company has products in areas like multiple sclerosis and a number of rare diseases.
During my visit to Sanofi I spoke to CFO Jérôme Contamine. Unlike earlier, Sanofi is finding it cannot develop all the new, groundbreaking medicines itself. Sanofi’s focus is therefore increasingly on working with international companies that have promising research pipelines.
One example is the US company Regeneron, which together with Sanofi has developed the drug Praluent to fight raised cholesterol levels in the blood. Sanofi is also working on launching dupilumab, a treatment for chronic eczema and hives. Both products could generate sales of DKK 36-48bn over the coming seven to eight years.
However, not everything at Sanofi was positive, in my opinion. The company is seeking to increase its presence in the cancer area, even though Sanofi’s research is lagging behind other companies, such as Roche – and as an investor it can be worrying when companies want to conquer new markets that are becoming increasingly competitive. I have a lot of respect for the partnership with Regeneron on cancer, but I could be worried about how much Sanofi might pay to expand further into the area.
Novartis banking on own research
Swiss Novartis is Europe’s largest pharmaceutical company by value and sales. It recently held a capital markets day where the focus was on showcasing the company’s basic research unit Novartis Institutes for BioMedical Research, which has a USD 4bn budget for new drug research.
Novartis has appointed two very prominent executives to run the department in the shape of Dr. James Bradner, former professor at Harvard Medical School, and Dr. Vasant Narasimhan.
Whether this will result in growth over the long term is of course difficult to forecast, though it does send a strong signal when Novartis hires two of the world’s leaders in their respective fields.
Several Novartis patents will expire in the coming years, yet the new initiative signals the company’s long-term focus will be concentrated on in-house development and innovation rather than partnerships with other companies. That said, Novartis will likely make a major acquisition within 24 months to compensate for the expiring patents and to create earnings for new research.
The fruits of Novartis’s own basic research include the drugs Entresto and Cosentyx. Novartis has just launched Entresto, a new heart medicine that has been incorporated into cardiologist treatment guidelines. Moreover, Novartis has made a number of innovative agreements with health insurance companies in the US, which could cause sales to accelerate in 2017. Novartis has also launched Cosentyx to treat psoriasis and spinal arthritis (ankylosing spondylitis, or Bechterew’s disease). The drug has proved effective and has the potential to be a ‘multi-blockbuster’.