With Roche's loss of 'Cabilly patents' more than $600M in royalties dissipate as well

Roche is facing biosimilar competition to its mainstay cancer drugs on top of the loss of its Cabilly manufacturing patents next year.

Some of the patents on Roche’s top-selling cancer drugs have been falling away, leaving them vulnerable to biosimilars and the loss of billions of dollars. But another set of Roche patents essential to these drugs will soon lapse, freeing drugmakers from paying Roche royalties on hundreds of cell-based drugs.

For nearly 35 years, the so-called “Cabilly patents,” granted to Roche’s Genentech unit in 1983, have allowed Roche to set up a toll booth collecting royalties from competitors including Eli Lilly, GlaxoSmithKline and AbbVie, which uses the processes to manufacture Humira, the world’s global leader with $16 billion in sales.

The patents expire December 2018, a year in which these patents are estimated to generate about $1 billion for Roche and City of Hope, where a team led by scientist Shmuel Cabilly first developed the process. The California medical center shares in the royalties with Roche. Last year it received an estimated $300 million, Reuters reported, while Roche took in an estimated $500 million, more than the revenues on many of its drugs.

A spokesperson acknowledged to the news service that there would be a financial impact to its royalties revenues, but Michael Nawrath, a Zuercher Kantonalbank analyst, put it more bluntly.

“Beyond the sales losses through biosimilars, hundreds of millions in royalties will evaporate,” Nawrath told Reuters. “Roche faces a double whammy as it becomes a net payer of royalties.”

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It will be a net payer because it has to fork over royalties to other companies on sales of some of its own drugs. For example, Roche will pay Biogen between 13.5% and 24% of U.S. sales, and 3% for sales outside the U.S., on its new multiple sclerosis drug Ocrevus under a 2010 development deal. The drug’s revenues by 2022 are projected to hit $4 billion.

There have been many challenges to the Cabilly patents over the years by drugmakers frustrated over having to pay the fees, but none have succeeded. More recently, however, there have been indications that Roche’s fortifications on the patents were weakening. Last year, it settled an inter partes review patent challenge from Sanofi and sometime development partner Regeneron. The terms of the settlement were confidential.

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The loss of the Cabilly patents comes even as generic competition is steadily making its way against Roche’s top-selling Avastin, Herceptin and Rituxan, a drug triumvirate that generates more than $20 billion in sales, nearly half of Roche’s annual revenues. All three rely on the Cabilly manufacturing processes.

In July, an FDA advisory panel backed two Herceptin biosimilars, one from Amgen and Allergan and the other from Mylan. Two Rituxan biosims are also under review; Roche is hoping its follow-up drug Gazyva can pick up where Rituxan left off.

Roche is looking to offset some of the generic hit and augment sales of its newer cancer drugs with combinations of the old and the new. The FDA recently prioritized a combination marrying its Perjeta to mainstay breast cancer medication Herceptin, for use in HER2-positive early breast cancer after patients' tumors have been surgically removed. The quick review could win the new combo an approval by Jan. 28.