Morningstar | Global Alecensa Uptake Counters Rituxan Biosimilars; Raising Our Chugai FVE Following 3Q
We've slightly raised our Chugai fair value estimate to JPY 4,820 from 4,680 following third-quarter results. Steadier-than-expected Avastin revenue and continued strength in overseas revenue for Actemra and Alecensa more than countered the increasing Rituxan biosimilar headwinds in our model. We continue to see Chugai’s economic moat as narrow, as the firm’s novel pipeline and collaboration with Roche is partly countered by pricing and demographic headwinds in Japan.Our top-line estimate for 2018 (JPY 575) is now significantly above Chugai's original forecast for 2018 (JPY 541.5 billion), while Chugai's 4.7% top-line growth in the third quarter was another consecutive dip from the very high 18% growth in the first quarter and 8.2% growth in the second quarter, this was largely due to a one-time boost to other income in the first quarter, as fundamental product sales growth remains steady.
Chugai is poised to easily beat our previous forecast for Actemra overseas revenue (and management's internal JPY 73 billion forecast), even given the potential lumpiness of Roche's orders. Roche's overseas Alecensa orders were also ahead of our estimates, which fits with our recently raised global Alecensa sales forecast for Roche. In addition, Avastin appears to be holding with slightly positive revenue growth for the year, despite significant competition from new immuno-oncology options (including Chugai's Tecentriq). Avastin is helping to keep Chugai's domestic oncology business steady in 2018, despite faster than expected erosion to Rituxan from biosimilar competition in Japan (we now assume steeper Rituxan declines for 2018, going from 30% to 35%).
In the pipeline, we’re most focused on the potential of oncology drug Tecentriq and hemophilia drug Hemlibra, but label expansions for Gazyva (granted in July) and Perjeta (granted in October) could also significantly drive sales of these products in Japan. Tecentriq is now launched as a second-line treatment for NSCLC in Japan and was filed in first-line NSCLC in March. Tecentriq’s late-stage development also includes a phase 3 liver cancer study, and Chugai expects to file for approval of Tecentriq in kidney cancer and breast cancer later this year and SCLC in 2019; we expect Japan sales of Tecentriq to eventually reach $1 billion annually. Hemlibra is now approved in Japan for patients with inhibitors and was approved in the broader noninhibitor hemophilia A market in the U.S. in October; we assume global peak sales for Hemlibra north of $3 billion a year.
Chugai Pharmaceutical is a pharmaceutical company. Along with its subsidiaries, Co. is engaged in the research and development of new prescription medicines and the subsequent manufacturing, marketing and distribution activities. Co. sells its pharmaceutical products to the nationwide appointed stores in Japan, as well as in overseas, such as Germany, the U.K., France, Taiwan, China, South Korea and the U.S. Co., through its subsidiaries, is also involved in the management of research facilities, and the research on drug discovery, as well as the provision of literature research services for pharmaceutical information, and pharmaceutical academic information.
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