No one expected good 2009 results for Belgian mid-cap UCB. The company faces a perfect storm of earnings headwinds, led by ongoing generic competition to its top-selling epilepsy drug Keppra (levetiracetam).
The drug, whose sales peaked at $1.3 billion, began losing protection in the U.S. in November 2008 and goes off patent in Europe this year. UCB lost €471 million ($637 million) in Keppra profits in the U.S. in 2009, but it's also still suffering losses from its once-core allergy franchise (which was dominated by antihistamine Zyrtec (cetirizine).) This year, UCB stands to lose about $50 million in annual royalty income, including from patents obtained through its 2004 acquisition of UK biotech Celltech.
No surprise, then, that UCB on March 2 reported 2009 revenue fell 13 percent to €3.1 billion, at the bottom of its forecast range, and is projecting slightly less - €3 billion - for 2010. Profits (recurring EBITDA) also shrank 5 percent to €698 million, and are forecast to be about the same this year. "We don't expect much growth over the next two years," admitted CEO Roch Doliveux in an interview in February.
But beyond that, he's banking heavily on the success of three new drugs - anti-TNF treatment Cimzia (certolizumab) for rheumatoid arthritis and Crohn's disease; epilepsy treatment Vimpat (lacosamide) and Parkinson's/restless leg syndrome drug Neupro (rotigotine). He claims these will allow UCB to deliver double-digit compounded earnings growth from 2012, sustained for up to 10 years - transitioning the company onto a nice upward curve just as several of its pharma competitors face the worst of their own patent storms.
Execution Game
Since all three of UCB's new drugs - referred to internally as "CVN" - are launched, the challenge lies in execution. As expected, the company's own forecasts for the products, which were announced during its March 2 results meeting, were bullish - Cimzia was forecast to reach €1.5 billion, Vimpat projected to hit €1.2 billion and Neupro was estimated to generate €400 million by the second half of the decade (the figures include new indications across all markets).
At first glance, these figures, if achieved, appear likely be sufficient to compensate for UCB's earnings headwinds, which is expected to shave what was about half of the company's 2009 profit contribution by 2015, according to Credit Suisse.
But it's too early to judge whether UCB's optimism is justified (and the company wouldn't single out peak sales in existing indications). All three drugs have to some degree disappointed already. Vimpat, for instance, suffered a blow when the FDA in 2008 rejected the drug for use in what potentially would have been its largest indication - diabetic neuropathic pain (DNP). And Neupro was withdrawn in 2008 (one year after its U.S. launch and two years after its European launch) due to a manufacturing problem (it has since returned in Europe). And Cimzia caused difficulties before it was even approved.
The raft of development and regulatory delays for Cimzia (originally a Celltech drug) meant that an already competitive marketplace - which is dominated by heavyweights such as Johnson & Johnson/Merck & Co.'s Remicade (infliximab) and Amgen/Wyeth's Enbrel (etanercept) -became even more so.
In between Cimzia's earliest expected launch date (old Celltech analyst reports talked about 2002) and its actual market appearance - in the U.S. in 2008 for Crohn's disease and 2009, and in both the US and EU, as a twice-monthly treatment for RA - along came Abbott's more convenient twice-monthly Humira (adalimumab) for Crohn's in 2007 and, most recently, J&J's once-monthly Simponi (golimumab), which was approved by the FDA for RA in April 2009.
Although UCB suggests Cimzia remains the drug with the highest sales potential, some analysts disagree. "They're putting a brave face on Cimzia, but we're not fans," says Morgan Stanley analyst Peter Verdult. "It's still a show-me story."
Cimzia's 2009 sales of €75 million were significantly below analyst consensus of about €90 million, according to Piper Jaffray. Besides well-entrenched competitors, part of the problem appears to be weak clinical differentiation. Doliveux points to Cimzia's fast onset - and duration-of-action, and to low levels of immunogenicity, but it's not clear these messages are trickling through. Meanwhile, UCB has been forced to emphasize the drug's ease of administration (using a patient-friendly self-injection device designed by a consumer products firm) and low injection-site pain.
In the U.S. at least, UCB can't use price to gain a foothold either. The rebates on Humira and Enbrel are so big that even giving away Cimzia for free wouldn't make a difference, according to a senior UCB source. So UCB has had little option but to offer to reimburse all patient co-pays in order to drive greater use.
In the more price-driven UK, UCB didn't even risk waiting for initial negative reimbursement guidance from National Institute of Clinical Excellence (NICE) before proposing a cost-sharing scheme in which it offers the first 12 weeks' worth of the drug to each new patient for free ('The Pink Sheet', Feb. 1, 2010).
Vimpat Looking Better?
But if Cimzia's potential remains controversial, there's evidence that Vimpat (inherited from UCB's 2006 acquisition of Schwarz Pharma) is off to a good start, despite underwhelming 2009 sales of just €46 million (which was more than €25 million below consensus). The drug is sold for partial-onset seizures in adults with epilepsy, and its launch appears to be roughly tracking that of Keppra despite a 50 percent price premium in the U.S. (but less in Europe). That means it doesn't need to become as large in volume terms as Keppra in order to fill the Keppra gap.
According to Credit Suisse analyst Ravi Mehrotra, initial physician feedback is positive. After a relative drought of new drugs, they apparently welcome an alternative, and are fast pushing Vimpat into second-line therapy (where Keppra chalked up most of its sales). Building on its established track-record in neurology, UCB appears to be doing a good job positioning the product - which was launched simultaneously as a tablet, solution and IV - as a sufficiently differentiated medicine. In late February, Credit Suisse tripled its 2015 peak sales estimates for Vimpat to $775 million - still a good deal below UCB's own goal, however.
UCB's dependence on these three products is risky, given the aggressive cost cuts that the company has been undertaking. Efficiencies gained through its SHAPE program are welcome ('The Pink Sheet' DAILY, Jan. 23, 2009), but most recently, the company exited the U.S. primary care market, and also has sold activities in various non-priority emerging markets to GlaxoSmithKline ('The Pink Sheet,' Mar 23, 2009).
If the gamble works out, though, UCB will look considerably more attractive relative to its peers from 2012 or 2013. It's this future growth that investors - who have pushed UCB's shares up about 10 percent this year - seem to be banking on.
Given its current earnings pressures, UCB's priority right now isn't on building the late-stage pipeline. For one thing, the company feels it has enough to do focusing on CVN. And even after a 2009 re-financing, UCB had net debt of €1.75 billion at the end of last year.
But with regard to the current pipeline, UCB expects to begin Phase III trials of lupus drug epratuzumab this year, and will conduct an additional Phase III epilepsy trial for brivaracetam, which reported mixed Phase III results during 2009. Discussions are ongoing with the European regulators for Xyrem (sodium oxybate) in fibromyalgia. UCB also on March 2 announced it would develop Cimzia in ulcerative colitis, while confirming the drug won't make it onto the market in Europe for Crohn's.
- Melanie Senior (m.senior@elsevier.com)
This article is reprinted from "The Pink Sheet" DAILY –Mar 2, 2010
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