Pandemic Impact Limited As Chugai Reports Strong First Half
But Outlook More Uncertain
Executive Summary
Roche’s Japanese affiliate says the impact of the pandemic on its second quarter was limited, but points to a more uncertain outlook for the rest of the year, during which it vows to keep focusing on innovation.
Despite the ongoing global coronavirus pandemic, Chugai Pharmaceutical Co., Ltd. logged strong revenue and profit growth in the 2020 first half, saying that it had seen only limited financial impact from the virus, although there have been “wide-ranging influences” on its business activities.
Tatsuro Kosaka, chairman and CEO of the major Japanese firm, majority-owned by Roche Holding AG, did concede at an earnings briefing that business conditions are “increasingly uncertain” amid the “totally unexpected” pandemic. Even so, he noted there were “no major negative impacts” on revenues, profits or product supplies in the six months ended 30 June.
The timings of regulatory filings and product approvals have been proceeding much as expected, although the schedules and methodology of some consultations with authorities have been changed, the company said.
In the Japanese market, there have also been some delays in market penetration for newer drugs due to reasons including restrained sales activities, decreases in hospitalizations and outpatient numbers and postponement of switching to new drugs. On the positive side, restricted sales activities and overseas travel have reduced expenses in these areas, Chugai said.
The challenging environment has had some effect on uptake speed for Tecentriq (atezolizumab) in the additional indication of PD-L1-positive, hormone receptor-negative and HER2-negative inoperable or metastatic breast cancer, for which it was approved in Japan last September.
Sales of the immuno-oncology drug continued to expand in its main non-small cell lung cancer (NSCLC) setting, however, and it was also filed for hepatocellular carcinoma this February.
More generally, restrictions on visits to medical facilities and participating patients In Japan have led to delays in start timing and progress of some clinical studies, “but these are expected to be resolved in the future,” Chugai said.
Meanwhile, earlier in the R&D process, the schedules of some discovery research have been revised but there have been no delays so far for any high-priority projects. Major submissions planned over the remainder of this year include risdiplam for spinal muscular atrophy and AKT inhibitor ipatasertib for breast cancer, Project & Lifecycle Management Unit head Dr Minoru Watanabe told the briefing.
Record Sales, Profits
While penetration at home was a little slower than anticipated for Hemlibra (emicizumab) for hemophilia A, steady sales to global partner Roche of this product and Actemra (tocilizumab) for rheumatoid arthritis and other inflammatory conditions helped push Chugai’s revenues up by 15% to JPY368.1bn ($3.5bn) in the six months.
This growth helped overcome lower Japanese revenues, which were hit by the general industry-wide reimbursement price revision in April and created what chief financial officer Toshiaki Itagaki described as “a very difficult quarter” in the domestic market.
Core operating profit surged by 39% to JPY143.7bn, helped by higher royalties and profit sharing from Roche for partnered products.
Domestically, oncology continued to be by far the mainstay business, with Avastin (bevacizumab) continuing as top product, although sales fell (by 13% to JPY40.7bn) on generic competition. Chugai expects the decline to continue, although Tecentriq sales are seen more than doubling to JPY44.6bn for the full year, helping to fill some of the gap.
A planned submission this year for Tecentriq in urothelial carcinoma remains on track and Chugai is positioning the anti-PD-L1 antibody to become one of its major mid-term growth products, amid the competitive and generic challenges to Avastin.
Chugai is following Roche’s general strategy of developing Tecentriq in new combinations, and Watanabe highlighted the Phase II CITYSCAPE results with tiragolumab, an anti-TIGIT antibody, as a first-line therapy for NSCLC. (Also see "Roche’s First Anti-TIGIT Data Support Dual Checkpoint Inhibition Strategy" - Scrip, 14 May, 2020.)
“Japan is joining efforts to begin global Phase III studies in order to further the development of the combination,” he told analysts.
The continued growth prospects for oncology and Chugai’s (mostly Roche-derived) pipeline in the sector are chiming well with investors and took Chugai’s market capitalization to around JPY8,800bn as of mid-July. This was the highest within the pharma sector in Japan and the seventh overall for any listed company in the country behind global behemoths such as Toyota and Sony.
Tocilizumab In COVID-19
Chugai’s shares did take an early hit in morning trading in Tokyo on 30 July from the negative results released the previous day for tocilizumab as a possible treatment for COVID-19 pneumonia in hospitalized adult patients, but had largely recovered by midday, probably reflecting pre-existing uncertainty over the outcome.
The IL-6 targeting antibody is being investigated in the COVACTA trial as an intervention to address the cytokine storm triggered in some patients but missed most of its endpoints in the Phase III study. (Also see "Coronavirus Update: Roche's Actemra Fails In Phase III COVID Study" - Scrip, 29 Jul, 2020.)
While the results briefing was held just before the announcement of the negative study data, CFO Itagaki said that second-half export growth for the product would be linked to the outcome, and the study was a focus of several analyst questions around this issue.
Roche has several other ongoing studies investigating tocilizumab for patients with COVID-19-associated pneumonia, including two Phase III clinical trials - REMDACTA, looking at combination use with Gilead’s antiviral remdesivir, and EMPACTA in minority populations - as well as the Phase II MARIPOSA trial. There are also a number of independent trials underway exploring efficacy and safety in the COVID-19 setting.
In a 27 July note (before the COVACTA results), SMBC Nikko analysts said the remdesivir combo study would be a “major potential catalyst”, with results expected sometime from August. “However, we think success probability is low,” they said.
Elsewhere in the coronavirus area, Chugai is also working on potential antibody therapies at its Singapore R&D center. (Also see "Coronavirus Update: Rapid Japan Approval For Remdesivir, Combination With Lilly's Olumiant Is Next Hope" - Scrip, 11 May, 2020.)