Roche/Novartis: rivals play king of the pill

Adjacent states often battle over territory. No surprise then that neighbours Roche and Novartis — both run out of Basel, Switzerland — want to occupy the same ground. For years, differing strategies kept the two pharmaceutical companies apart. Roche was a “pure play” pharma company while Novartis was diversified. Now that Novartis has shed its non-core businesses and Roche has reduced its reliance on cancer drugs, the pair are competing in similar markets. Two recent European regulatory approvals show how close the fight will be.

Novartis’s multiple sclerosis drug Kesimpta gained approval at the end of March. It will compete with Roche’s seller Ocrevus, which brought in SFr4.3bn last year. Both drugs have similar mechanisms, but Ocrevus is administered by infusion in hospitals twice a year while patients can inject Kesimpta themselves at home.

Meanwhile, Roche has secured approval to sell Evrysdi, the first at-home treatment for spinal muscular atrophy, a rare, devastating muscle-wasting disease. It will go up against Novartis’s gene therapy Zolgensma. One of the world’s most expensive drugs, it is expected to make sales of $1.5bn this year, according to Evaluate Vantage.

For all the similarities in their strategies, the companies’ share price performances have diverged. The pair had roughly the same market value three years ago. Since then Roche’s share price has left Novartis behind, up over 40 per cent.

Novartis’s shares are up by less than half that, as investors fret about future patent expiries. For example, Kesimpta should have peak sales of $2.2bn in 2025, on Bernstein estimates. That merely offsets the decline from its existing MS drug Gilenya as it loses patent protection. While Novartis trades relatively cheaply, on a forward price to earnings some 40 per cent below the market, most large European pharma offer similar value.

Despite some bad news for one of its potential blockbusters recently, Roche should narrowly outpace Novartis by sales in the next year. That makes the former the better choice in this local turf battle for the market’s attention.