These 2 Breast Cancer Treatment Makers Will Rise as Another Falls

Last week, two major events shook up the market for breast cancer treatments. Shares of Halozyme Therapeutics and Roche rose on the EU approval of subcutaneous Herceptin, while Eli Lilly fell after the failure of its breast cancer drug.

HALO Chart
HALO Chart

Source: YCharts.

Let's take a closer look at these two major events and see what they mean for the future of these companies.

Halozyme's revolutionary technology
Halozyme is best known for its recombinant human enzyme technology, which enables intravenous medications to be injected subcutaneously. That technology dramatically makes administering drugs a more convenient and less time-consuming affair.

Halozyme has five major collaborators -- Roche, Pfizer, Baxter International, Intrexon and ViroPharma . Baxter's immunodeficiency treatment HyQvia, which uses Halozyme's enzyme technology, was launched in the EU in July, and triggered a $4 million milestone payment to Halozyme.

Meanwhile, Halozyme's collaboration with ViroPharma has been problematic. Halozyme and ViroPharma attempted to create a subcutaneous version of its HAE treatment Cinryze, which is currently administered intravenously. However, ViroPharma canceled the trial in August after patients developed antibodies to erroneously defend against the human enzymes that were transporting Cinryze into the bloodstream.

That news cast a long shadow over Halozyme, as investors wondered if similar issues would arise with its other collaborators.

Roche comes to the rescue
Fortunately, those concerns were allayed by Roche, which recently received EU approval for Herceptin SC, a subcutaneous version of its breast cancer drug Herceptin developed with Halozyme. Herceptin is a treatment for HER2 positive breast cancer, a particularly aggressive form of breast cancer that affects 15% to 20% of diagnosed patients. The drug generated $6.3 billion in sales in 2012.

A dose of Herceptin SC only requires two to five minutes to administer, compared to the 30 to 90 minutes required for the traditional intravenous dose. Therefore, Herceptin SC could easily replace the intravenous version of the drug completely, helping Roche outlast next year's patent expirations of Herceptin.

The EU approval triggered a $10 million milestone payment from Roche to Halozyme -- a huge boost for a company that only reported $14.5 million in revenue last quarter. Halozyme will also receive royalties and additional milestone payments from Herceptin SC in the future. In addition, Roche and Halozyme's MabThera SC -- a subcutaneous version of Roche's cancer and arthritis drug rituximab -- is under regulatory review in the EU.

Another failure at Eli Lilly
As Roche and Halozyme shareholders celebrated, shares of Eli Lilly fell after the company reported that it would not seek the approval of its experimental drug, ramucirumab, as a treatment for HER2 negative breast cancer -- the most common type of breast cancer -- after its phase 3 trial failed to show a survival benefit.

Ramucirumab is a cancer treatment that has been tested on colon, liver, lung, stomach, and breast cancers. It is an angiogenesis inhibitor like Roche's Avastin, which halts the growth of new blood vessels to prevent the spread and growth of cancer cells. However, just as Avastin's conditional approval for breast cancer was revoked in 2011 after it failed to show a survival benefit, Lilly's drug hit the same brick wall.

Despite its failure as a breast cancer drug, ramucirumab has shown positive results as a stomach cancer treatment, which Sanford Bernstein analyst Timothy Anderson claims could generate $600 million in annual sales on its own by 2020.

However, Wall Street was expecting much more from ramucirumab, which Lilly gained from its $6.5 billion acquisition of ImClone Systems in 2008. ISI analyst Mark Schoenebaum stated that the breast cancer setback would cost Lilly $500 million to $600 million in annual sales, reducing its full-year earnings per share by 3% to 8%.

Lilly has been counting on ramucirumab to offset the upcoming losses from its best-selling antidepressant Cymbalta, which will lose patent protection in the U.S. later this year. Cymbalta generated $5 billion in sales in 2012 for Lilly, a year-over-year increase of 20% that accounted for 22% of its top line. The upcoming loss of Cymbalta has already prompted Lilly to start pay freezes in anticipation for a 20% reduction of fiscal 2014 revenue.

Yet even if ramucirumab can hit peak sales of $1.3 billion, as Leerink Swann analyst Seamus Fernandez projects, it won't nearly be enough to offset that huge loss.

The Foolish takeaway
The world of oncology treatments is a fast-moving one where riskier plays, like Halozyme, can reap big rewards. On the other hand, Roche, the largest oncology treatment company in the world, is particularly proactive in partnering up with promising smaller companies like Halozyme, as I noted in a previous article.

Meanwhile, Eli Lilly is a textbook example of a company becoming too top heavy in its dependence on a single drug. Lilly now faces a patent cliff without a viable treatment to replace Cymbalta -- a stark contrast to Roche, which can now effortlessly jump from its intravenous version of Herceptin to the new subcutaneous one to sidestep its own patent cliff.

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