Memorandum

Roche 2Q13 –Diabetes Care down 4% as reported, North America down 8%; tofogliflozin and aleglitazar discontinued – July 25, 2013

Executive Highlights

  • Roche Worldwide Diabetes Care totaled 666 million CHF (~$706 million) in 2Q13, down 4% on both a reported and operational basis.
  • Management noted a change in structure in response to pricing pressures and reduced reimbursement, although they emphasized their commitment to insulin delivery systems and CGM.
  • Both aleglitazar and tofogliflozin have been discontinued – aleglitazar for lack of CV benefit and unspecified safety signals, and tofogliflozin for unspecified reasons.

Roche reported 2Q13 financial report this morning. Global Diabetes Care sales totaled 666 million CHF (~$706 million), down 4% on both a reported and operational basis from 2Q12. For context, growth was down 3% by both metrics. Diabetes Care sales in North America totaled 144 million CHF (~$153 million), down 8% on a reported basis from 2Q12. Considering the increase in pricing pressures and the beginning of competitive bidding in the US, this decline was not unexpected. In response to pricing pressures and competitive bidding, management outlined their plan to integrate R&D and reduce cost space, among other changes. Significantly, Roche also highlighted their dedication to continue to invest in insulin delivery systems and CGM. Turning internationally, EMEA (Europe, Middle East, and Africa) reported sales of 392 million CHF (~$416 million), down 1% on a reported basis. In Latin America, Asia-Pacific, and Japan (RoW), sales totaled 130 million CHF (~$138 million), down 10% on a reported basis. However, the 2Q12 comparison was challenging, with 18% growth on a reported basis.

Management highlighted their commitment to device innovation, noting strong 45% growth from Accu- Chek Mobile, which uses Roche's maltose independent test strips. In the device pipeline, the Accu-Chek Active meter has been launched in the EU, and Roche plans to launch Accu-Chek Insight, a next generation insulin pump and blood glucose meter, in the EU in the second half of 2013.

Roche's diabetes pipeline is rapidly shrinking, with both aleglitazar and tofogliflozin discontinued since Roche's last financial update. Management touched briefly on the previously announced decision to halt aleglitazar trials. As a reminder, Roche terminated the trials due to lack of CV benefit and unspecified safety signals observed during a regular safety review. Management expressed its disappointment, but also noted that CV protection was a very ambitious goal. Roche announced this morning that the phase 3 SGLT-2 inhibitor tofogliflozin, which had been outlicensed by Chugai, had also been discontinued for unspecified reasons. In other cardiometabolic pipeline updates, Roche added a new small molecule to phase 1 (RG7410) for "metabolic diseases." It is currently in an ongoing phase 1 trial. The phase 1 multiple-ascending dose study continues for the GLP-1/GIP dual agonist MAR709/RG7697 with no timeline updates. Finally, Roche announced that it would only advance with its phase 2 PCSK9 inhibitor with a partner (public presentation of phase 1 data and internal readouts of phase 2 data are expected in 2013).

  • Turning to pharmaceuticals, Roche/Genentech's diabetic macular edema (DME) drug Lucentis (intravitreal ranibizumab) continues to trend toward recovery. Sales in 2Q13 totaled 427 million CHF ($453 million), up 19% as reported and 18% operationally (its second quarter in a row of positive growth after one year of decline). During Q&A, managementremarked that it was "positively surprised" with Lucentis' performance. As a reminder, Novartis holds rights to Lucentis outside the US (see our Novartis 2Q13 report for details on Lucentis' international performance).
  • Lucentis’ performance was driven by a stabilizing share in wetAMD, where previously another anti-VEGF agent (Bayer's Eylea) had been eroding Lucentis' share. In DME, management estimated in Q&A that Lucentis has about one quarter of the market share (and a strong opportunity for continued penetration), with the rest belonging to surgical procedures and off-label use of Avastin.

-- By Jessica Dong, Hannah Martin, and Kelly Close

Editor’s note: This piece was updated on July 29, 2013 to reflect accurate financials reported by Roche. We had previously reported that global sales fell 5% on an operational basis and North America sales had declined 14% on an operational basis. We are not able to comment on operational growth in North America or out of North America for 2Q13. We apologize for any confusion this may have caused.