On top of expiring Herceptin patents, Roche faces huge royalty losses in 2019

We all know some of Roche’s most valuable patents are expiring soon, not the least of which is the huge revenue-driver cancer drug Herceptin. But in its latest financial update, Roche outlined a different set of patents that will soon cut hundreds of millions from its balance sheet.

Severin Schwan

In its mid-year earnings update, Roche warned investors that its “Cabilly” patents —  which protect a step in the manufacturing process of cell-based therapies — would expire in December. For the past 35 years, these patents (granted to Roche’s Genentech unit in 1983), have allowed Roche to collect royalties from competitors like AbbVie, which uses the processes to manufacture Humira. That drug sold $18.5 billion last year.

The Cabilly patents have been an object of speculation over the years as investors tried to estimate exactly how valuable they were to Roche. But now, Roche has trotted out an actual figure. Last year, the patent royalties brought in $840.4 million. That will soon evaporate. And the per year value is higher than analysts at Barclay’s Capital assumed, they wrote, “which will likely provide a stiff headwind for 2019.”

It’s a troubling problem to have considering the fact that Roche will soon be losing its exclusivity on Herceptin, whose patent expiration is also in 2019. Herceptin sales makes up a big chunk of the Roches’s total revenue, bringing in $7 billion in sales last year.

It’s important to note, however, that Roche posted some promising figures in its H1 update, indicating that it’s making some progress compensating for its upcoming losses. That’s largely thanks to newly-launched treatments like MS therapy Ocrevus and breast cancer drug Perjeta. CEO Severin Schwan said they were “well on track to rejuvenate” their portfolio. The company reported core operating profits rose 10% to $11.3 billion in the first half of the year. Sales rose 7% to $28.3 billion, beating analysts’ expectations.

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Research Scientist - Immunology
Recursion Pharmaceuticals Salt Lake City, UT
Director of Operations
Atlas Venture Cambridge, MA

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