* Biosimilar clash may push Novartis to sell Roche stake
* Novartis has bet on copycats, Roche sticks to originals
* Novartis sees biosimilar discount of up to 75 pct
By John Miller
ZURICH, May 30 (Reuters) - Switzerland's biggest drugmakers
are clashing over cheaper copies of pricey biotech drugs - one
reason why Novartis NOVN.S is considering selling its $14
billion stake in cross-town rival Roche ROG.S .
With a copycat of Roche's blood cancer drug Rituxan pending
European approval, Novartis aims to muscle in on a share of
sales that last year hit 7 billion Swiss francs ($7.1 billion).
But Roche is fighting back with a new medicine, Gazyva,
which it contends is better than Rituxan.
This clash illustrates the Basel drugmakers' starkly
different strategies. Beyond its own new drug portfolio,
Novartis has a big side bet that cheaper "biosimilars" from its
Sandoz generics unit can grab rivals' profits, while Roche has
limited its focus to new drugs to counter such incursions.
"Does that thinking reflect at all about the Roche stake?
Obviously, it certainly does," Novartis CEO Joe Jimenez said
last week, adding he would unleash "one of the best and
most-potent oncology sales and medical forces" to peddle
rituximab, Rituxan's generic name, in Europe as early as next
year.
Novartis amassed one-third of Roche's voting stock RO.S in
the early 2000s during a failed merger bid. As Jimenez finally
mulls an exit, he has abandoned demands that Novartis get a
premium for the stake.
He has not put a timeframe on the potential sale, but
analysts think it increasingly likely as the battle between the
firms intensifies.
The money raised could bolster Novartis' hand, while Roche
will be hoping the sale does not drive down its share price.
Analysts think the stock is likely to appeal to institutional
investors rather than a potential bidder as Roche's founding
family retains a controlling stake. ASSUMPTIONS
Roche declined to comment on Novartis' plans. But it remains
confident its scientists can come up with new, better drugs
faster than biosimilars from rivals such as Novartis can loot
older drugs' revenue.
A study released last week showing Gazyva was superior to
Rituxan for follicular lymphoma "is a perfect example of our
commitment to maintain our focus on developing innovative
medicines for people facing difficult diseases," said Roche
pharmaceuticals head Dan O'Day on Monday in an emailed response
to questions.
As Roche musters new data on its next-generation drugs,
Jimenez last week fired off a warning: Biosimilar copies will
likely sell at discounts of as high as 75 percent versus the
original product, far deeper than Novartis originally
anticipated.
The trend emerged in Europe last year, with steep discounts
offered on copies of Johnson & Johnson (NYSE:JNJ) JNJ.N and Merck (NYSE:MRK) & Co's
MRK.N co-branded Remicade, for rheumatoid arthritis and
Crohn's disease.
What he loses on price, Jimenez now plans to make up for in
volume. "If you look at the absolute return that we project,
we're essentially on (target) or higher, even with those
assumptions," he said.
MOTIVATION TO SELL
Novartis has many motivations to unload its Roche shares.
For one, Novartis is building its cancer franchise after its
2015 acquisition of GlaxoSmithKline GSK.L assets, so the stake
in Roche, the world's biggest maker of oncology medicines, risks
putting too many eggs in one basket.
Profit margins on Roche cancer drugs may narrow, too, if
Novartis's biosimilar strategy succeeds.
"The decision to divest its Roche stake is partly motivated
by biosimilar dynamics," Leerink analyst Seamus Fernandez told
investors.
Proceeds from the shares would replenish Novartis's
acquisitions warchest as Jimenez seeks "bolt-on" targets of up
to $5 billion, or possibly larger, as prices for takeovers come
down.
Also, inter-company tensions may escalate should Roche's
lawyers seek to stall Novartis's rituximab copy in the courts.
Such a lawsuit would make for uncomfortable times in Basel.
The legal threat is real: Xarxio, Novartis's version of
Amgen's blockbuster that prevents infections in cancer patients,
hit the U.S. market last year only after beating back a legal
challenge.
Jimenez said the aggressive legal strategies of drug
originators to delay would-be copies have replaced government
approval as the biggest stumbling block to speedy U.S.
biosimilar introductions.
"You're seeing less regulatory time, more blocking," he
said. "Eventually, as the legal battles are won, you're going to
see a good business in the U.S. with biosimilars."
($1 = 0.9912 Swiss francs)
(Editing by Mark Potter)