Earnings Call Transcript
ROGERS CORP (ROG)
Earnings Call Transcript - ROG Q1 2022
Operator, Operator
One last remark; if you would like to follow the presented slides on your end as well, please feel free to go to www.roche.com/investors to download the presentation. At this time, it's my pleasure to introduce you to Severin Schwan, CEO of Roche Group. Mr. Schwan, the stage is yours.
Severin Schwan, CEO
Thank you very much, and welcome to everybody to our Q1 briefing today. So let's go right into the slides. Here we go. Yes, overall, a strong start to the year, sales overall up by 11% at constant rates, good growth in both Pharma and Diagnostics. And what I should point out is that this is not only a sign of strong COVID sales, but what we also see is a strong growth of the underlying sales. I'll come back to that in a moment. Actually, the underlying sales on a group level grew by 9%. The second key element here is the progress we made with our portfolio. So it's really good to see that we successfully launched two important medicines for CBI diseases, Vabysmo and Susvimo, at the beginning of this year. And we have the upcoming launches for Polivy biospecifics in hematology. There is a lot more to come. As you know, Tecentriq in adjuvant, tiragolumab now with non-small cell lung cancer in the second quarter and a number of new platform launches on the diagnostics side. So a very critical year for us in terms of the clinical news flow. If we turn to the next slide, you can see a 6% growth in Pharma, 24% growth in Diagnostics. Bill and Thomas will comment on that in more detail, good growth, good continued growth on a quarterly basis. I should say, however, that we expect that to come down as of now, as we expect a slowdown of our COVID-related business for the remainder of the year. So here, again, the bridge across the different businesses. You can see a still very important impact related to the diagnostics COVID test and Ronapreve. But again, if you exclude the business last year and this year, and if we exclude the erosion effect on Avastin, Herceptin, and Rituxan, we have an underlying growth of 9% of our newly launched medicines and diagnostics, which is pretty remarkable. We expect a high single-digit growth of the underlying business for the remainder of the year. On the right-hand side of that slide is how the structure of our portfolio has changed, where EHR still plays a role, and we still have an impact with the continued erosion, but we are now entering a phase where we have overcome that specific loss of exclusivity of our major legacy cancer medicines. If we look at the outlook, we confirm the outlook for the full year. This is very much based on our planning scenario for COVID. We have assumed that we will still see strong demand for COVID in the first quarter. We did assume that we see less of an impact for the remainder of the year, and that is outlining the scenario. There's, of course, the potential that during the winter season in the fourth quarter, we see again an increasing demand for COVID solutions, but that is not what we have planned. So on the one hand, as I pointed out earlier, very strong growth of our new products and the base business. On the other hand, we do have continued headwinds from the biosimilars with roughly CHF 2.5 billion for the full year. We see a decline of COVID-19-related sales from CHF 7 billion last year to CHF 5 billion this year. A lot to come on the pipeline side. We have ongoing and upcoming launches; we just recently got also the CHMP positive opinion on mosun in hematology. A lot of important trials are to come for tiragolumab, Tecentriq, and also gantenerumab later this year. Likewise, on the diagnostics side, we have a rich portfolio with important launches ahead of us. May I also take this opportunity to do a bit of advertising for our first Roche ESG event where we focus on access to health care. This is actually taking place in May next month, on May 16. Let me conclude with this: again, the outlook confirmed, stable to low single-digit sales growth, low to mid-single-digit growth on the EPS side. On that basis, we expect to further increase dividends also for that year. With this, over to you, Bill.
William Anderson, CFO
Thanks, Severin. Hello, everyone. Great to have a chance to talk about our results so far this year. Starting out with the revenues and the global picture, as Severin mentioned, we grew Pharma sales 6% year-over-year globally. The breakdown is as follows: in the United States, we had 2% growth. Good to see another quarter of sales growth in the U.S. driven by a number of things, but basically, the pipeline offsetting or more than offsetting the biosimilar impact. In Europe, we were minus 1%. That was affected by the COVID sales. Without Ronapreve, you would add about 5 percentage points to that year-over-year because we had higher sales of Ronapreve last year than this year. So good healthy demand in the core portfolio. Japan saw very strong growth based on several factors, particularly a large government order for Ronapreve in Japan. International markets also had growth from our pipeline and new launches across the world, offset by biosimilar impact, primarily in China, which was down about 9% based on the AH&R biosimilar impact. If you look at it from a product standpoint, you can see Ronapreve at the top with the large yellow bar. This is the Japanese government order. Total sales were approximately CHF 600 million for the quarter. As we've mentioned before, we think that the total sales for Ronapreve this year will be around CHF 1.6 billion. A good chunk of it happened in Q1, and we believe the great majority of it will actually happen in the second half. There should be lower Ronapreve sales in Q2. We see the newly launched products driving the bulk of growth. At the bottom, the impact of biosimilars was somewhat less, about CHF 580 million in Q1, a bit lower run rate than we've had partly due to the general slowdown and the impact of biosimilars, and also because of ordering patterns in the U.S. The overall impact of biosimilars this year is still expected to be around CHF 2.5 billion. Looking at oncology, we actually grew the HER2 franchise again, which is a new thing because in recent quarters, it's been significantly affected by the Herceptin biosimilar losses. With continued growth, particularly with Kadcyla and Phesgo, we were able to move into growth territory and hope to continue that for some time. In Polivy, we had an 89% growth, which we think is some early potential use in the first-line setting but should now be reinforced by approvals. We have the positive CHMP opinion for DLBCL now for POLARIX in EMA, and we look forward to additional approvals in China and the U.S. later this year. The recently received positive opinion for mosun from CHMP is also encouraging as it allows us to introduce another new molecule. Going deeper on Phesgo, it's a fixed-dose combination that cuts the overall administration and monitoring time for patients from between 2 and 8 hours down to 20 to 40 minutes. As you can imagine, that's a very popular option for patients and also many healthcare facilities that have limited capacity. This will help patients come in and get out, and we believe that growth is going to continue for some time. Now let's talk about Tecentriq. The curve here looks a little flat, and I want to explain that. One factor is that we withdrew voluntarily the labels for bladder cancer and TNBC. From a year-over-year basis, that's certainly an effect, but also, that is basically washed out now. We think that there are very few patients left on Tecentriq with bladder cancer or TNBC. In the U.S., we had a quarter-over-quarter gain in Q1 as we see that washing out starting to build momentum with the adjuvant lung cancer launch. In Japan, they had a significant price cut mandated due to the rapid expansion, hitting a threshold where the government required a cut. We've also now achieved pretty high penetration with the small cell lung cancer indication, so growth with Tecentriq will come from additional penetration in liver cancer, as well as launches that are now happening worldwide in adjuvant lung cancer. In the U.S., we had encouraging results. We just received the approval in Q4 in the adjuvant setting. The Q1 tracker showed a 72% testing rate for adjuvant patients. That is, 72% of the patients receiving adjuvant therapy are being tested for PD-L1 positivity. That serves as a first step. We have a 49% penetration rate in that patient set with Tecentriq, showing strong early uptake, and we should see revenues from that in the quarters ahead, proceeding from Europe and other countries as we launch. Hemophilia also presents a strong picture for Hemlibra. In the U.S., you can see continued growth, and we believe we will not see flattening of U.S. growth as we continue. Likewise, in Europe, we had nice growth, and international markets continued to gain a bit. In Japan, the quarter-over-quarter result was down slightly due to ordering patterns where wholesalers did stocking at the end of the year. We're not particularly concerned as we see continued growth through this year and beyond for Hemlibra. Overall, immunology is stable at minus 2% year-over-year, with gains from Actemra offsetting losses from Rituxan. The Rituxan immunology indications have been impacted by biosimilars. Exchanges with expected climbing in sales as COVID wanes should see Actemra sales for COVID waning as well. The MS franchise had a robust quarter, with nice gains in the U.S., Europe, and international markets. We have an 18% year-over-year growth overall, showcasing strong momentum. This is within the context of the continued impact of COVID on switching. We had the Omicron wave hit hard both in the U.S. in December and January and through March in Europe. Despite that, we continue to see strong gains, and we look forward to returning to a more normal switching rate, accruing more patients for OCREVUS. Turning to Evrysdi and SMA, we had a strong picture. In the U.S., as we reported in Q4, there was a small decrease quarter-over-quarter in sales due to a bolus of patients trying it, with some dropping off. In Q1, we see a return to strong growth in the U.S. and continued strong growth in Europe as well. The dynamics are a little lumpy right now, but we see good overall growth from Evrysdi. We're optimistic due to data shared at the MDA clinical conference, focusing on the presymptomatic babies under 2 months of age. We've filed this data to extend our indication to these babies, showing very strong results in achieving things like sitting without support and crawling, with many achieving maximum scores, which means they are on a curve similar to normal babies. Moving to ophthalmology, this is another great area for positive news. For DME on the 2-year data, we had previously shown the 1-year data. A crucial measure is how many patients can extend dosing beyond the monthly starting dose. At 52 weeks, about 50% of patients could move to a Q16-week dosing, which is unprecedented in DME history. We were anxious to see if this advantage would maintain at 2 years. It has been encouraging, with the percent of patients extending dosing increasing from about 50% to just over 60% on average. Feedback from the data shared with physicians has been ecstatic about the benefits for their patients. Vabysmo has launched in the U.S. and is approved in Japan, expected to launch soon with reimbursement and to roll out to Europe and other countries later this year. Initial commercial sales are about CHF 21 million, with high interest and samples indicating momentum. Reports from physicians indicate patients on other therapies not achieving dryness have experienced success within a month on Vabysmo. We now have 11 paid claims in the U.S., showing plans making initial paid claims, which builds physician confidence for prescribing Vabysmo. While a permanent J code will likely be awarded by the end of Q3 or early Q4, these claims give reassurance, leading to a strong uptake of Vabysmo. Regarding Susvimo, results from the 2-year study mirrored the 1-year results, adding another boost to our ophthalmology portfolio. To conclude, the important news flow includes Vabysmo approved in the U.S., with Japan and Europe following. Glofit, a T-cell biospecific antibody, now has pivotal Phase Ib data in-house, with plans to share this at ASCO soon. We've mentioned last quarter that the small cell lung cancer study for tiragolumab failed, which is disappointing, as there has been only 1 breakthrough in 30 years for small cell lung cancer, Tecentriq's first Phase III study. For small cell lung cancer patients, we remain confident in our Phase II data for non-small cell lung cancer, looking forward to the SKY 01 program readout in Q2 to share data with you. We also indicated in our press release that our Phase II study in late-line ER-positive breast cancer with giredestrant was negative. While we missed the primary endpoint, we noted an encouraging signal that boosts our confidence in both the first-line and adjuvant settings, available for discussion in Q&A if desired. Lastly, regarding the Alecensa program, we will proceed with the final analysis in 2023 on the adjuvant program, which has seen event rates lower than projected. We'll have to wait a little longer for an answer. Now, I want to hand over to Thomas.
Thomas Schinecker, CRO
Thank you very much, Bill, and good morning, and good afternoon, everyone. I'm very happy to present the Q1 Diagnostics Division results. With sales of roughly CHF 5.3 billion, we had excellent growth across our businesses, leading to a 24% overall growth in constant exchange rates. This growth was driven by COVID-19 testing sales of more than CHF 1.9 billion, but also a very strong underlying base business growth that was in the double-digit range. However, I have mentioned previously last year a couple of times after every quarterly call that we had a positive effect last year in Q1 in Diabetes Care with a one-time payment due to dispute resolution of rebates. Without that positive effect last year, which impacted us negatively this year, sales growth would be at 1%. Looking at our regions, growth is driven by all areas, especially Asia Pacific and North America. In the U.S., this was primarily driven due to the approval of the COVID-19 rapid antigen test. We received approval on Christmas Eve last year and were able to deliver the first products into the U.S. at the end of January, a very significant impact for us in Q1. Core lab is growing very strongly at 8%, due to robust base business growth in all regions, despite a high base last year. Molecular lab, while still driven partly by SARS-CoV-2 PCR testing, is growing at 21%. Stripped of that testing, the underlying business in molecular lab is growing in the low 30s, showing significant progress. Point of care testing is growing by 84%, primarily from rapid antigen tests sales, very strongly in the U.S. Pathology also received a boost, growing at 14%, showcasing a strong quarter in that franchise. The diagnostics underlying business growth stood at 10%. If we exclude Diabetes Care, the effect is that we're growing 13% in our Diagnostics underlying business. Regarding the CHF 1.9 billion from COVID, this is spread across the COVID portfolio. Moving to Q2 and Q3, we do expect a significant decline in testing, particularly as some governments are easing restrictions, and we currently don't have in our plans the expectation for another spike in Q4. That could, of course, change due to potential immune-escape variants or older variants like Delta reemerging, but for now, we can't say with certainty. We continue to drive our menu on our molecular platforms, which are best-in-class in terms of automation and the ability to consolidate testing on one platform. We're launching a number of new parameters in the coming year. We've had over 1,900 placements of our 6800 and 8800 models, starting from 750 before the pandemic. At the end of last year, we launched the cobas 5800 targeting a different segment than the 6800 and 8800, with expectations for more than 500 placements this year. High demand continues across our molecular portfolio. I want to highlight one of the upcoming tests for FDA submission for emergency use approval this week, a SARS-CoV-2 DUO test detecting the virus qualitatively and quantitatively. This will be the first market-available truly quantitative test, incentivized by WHO standards. We currently have more than 10 different tests available detecting all variants, including Alpha, Beta, Delta, Gamma, Omicron, and subvariants. This is significant as we can track the spread of variants in real time. Our menu in the Serum Work Area platform showed good first-quarter growth; over 240 assays available on more than 100,000 instruments, representing the most differentiated assays in the industry. Upcoming launches include tests for SARS-CoV-2, including T-cell responses and a combination test for hepatitis C, providing faster and more precise diagnoses. We're also developing blood-based Alzheimer markers, with pTau 181 and ApoE4 in development. These markets will triage patients likely to have Alzheimer's, reducing those needing PET or spinal fluid tests by about 65% to 70%. Confirmatory CSF tests are in use outside the U.S., with plans for U.S. approval and breakthrough device designation from FDA. We've shown PET concordance, enabling us to deliver results quicker and at a lower cost. I'm very optimistic about the upcoming launches, as Severin highlighted; you can expect important launches in the coming months, expected driving strong growth in our base business. With that outlook, I hand over to Alan to detail the financials.
Alan Hippe, CFO
Yes, thanks, Thomas. Let me be brief today. Hello to everyone from my side as well. A couple of highlights: I'll discuss sales and currency impacts on sales today. Let me touch on the share repurchase of Roche from Novartis, and I want to give you an update about our financing situation. I won't have a slide on the patent settlement bullet point, so let me explain that briefly. This comes from Chugai, the product being Ultomiris, negotiated for some time. An agreement was reached; the group accounts show an impact of USD 775 million, which will record as income from out-licensing agreement and part of core net income, listed under royalties and other operating income. This is not sales. Let me put this into perspective with other aspects of the settlement. This revenue will be taxable at Chugai's tax rate, considerably higher than the group tax rate, around 30.5% in Japan versus around 18% for the group. Given that we own only 60% of Chugai, this factors into core EPS impact. The overall impact should be minimal and from a very substantial point of concern we have, especially considering the geopolitical risks surrounding us. Our Q1 was very good, partly driven by COVID. Severin mentioned an underlying growth without AHR and COVID sales showing 9.3%. We expect a decline in COVID sales, driving our guidance for the year down. Let me talk about Novartis share repurchase and our financing situation: we are aware of the volatile environment with geopolitical risks at play. Given the uncertainties with inflation, we see the importance of locking in financing related to the bridge. So far, we have refinanced roughly 70% of the CHF 19 billion initial bridge loan with bonds. In December 2021, we refinanced USD 6 billion, in February 22, CHF 3 billion, and another USD 5 billion in March 22, leaving us with CHF 5.9 billion, which we can refinance in the market if reasonable or with our operating cash flow. The yields we have achieved are great, with an average initial yield of 1.56% for an average maturity of 8.8 years. That's significantly lower than our assumption of around 3% for interest rates in 2022. The overall currency impact on sales is showing minus 1 percentage point. There have been headwinds from euro and other currencies like the Japanese yen, although the U.S. dollar provided some tailwind. The projection for the full year indicates a potential impact of minus 2 percentage points on sales, and the same applies to core operating profit and core EPS. According to the upcoming ESG event outlined previously by Severin, let me confirm our guidance: COVID-related sales are expected to fall from CHF 7 billion in 2021 to CHF 5 billion this year. We anticipate a similar CHF 2.5 billion decline in sales concerning biosimilars and an estimated overall group core tax rate of around 18% in 2022 versus 14.5% in 2021. Let me hand back to Severin and the team; we're happy to answer your questions. Thanks.
Severin Schwan, CEO
Great. Can we have the first question, please?
Unknown Executive, Executive
Yes. The first question comes from Wimal Kapadia from Bernstein. I think there's a technical issue. I will move on to the second one in the row. Richard Vosser from JPMorgan. Richard, please?
Richard Vosser, Analyst
Hopefully, you can hear me. Excellent. So just a couple of questions. Firstly, on China, we can all see lockdowns around Shanghai, and you've mentioned AH&R biosimilars. So just thoughts on the impact of the business from lockdowns and also how we should think about the biosimilar penetration, where it is today and where it can go in China for those brands. And then the second question, just on the SERD. So just obviously potentially a powering issue for a smaller Phase II trial. Given you didn't see statistical benefit, how do you see that playing out in terms of the Phase III first-line trial? Do you need to expand the trial? How should we think about that on the basis of the SERD data that we saw today?
Severin Schwan, CEO
Very good. On China, perhaps, Thomas, if you want to comment from your side, and then AHR, if you take over, Bill, and the question on the SERD.
Thomas Schinecker, CRO
Thank you very much for the question on China. You're right; there are impacts in China due to the lockdowns. But what I can say is it's nowhere near to what we saw in March and April of 2020. The impacts are smaller, and given the strong underlying performance of our business, we believe we can compensate those effects at this point in time. But we will need to see how things develop in China. We don't know yet the impacts on other components that we need. At this point in time, we believe we can manage it, but the situation in China will impact the world if these lockdowns continue for many months.
William Anderson, CFO
I would say on the Pharma side, Richard, we've seen minimal impact on the shape of the business from the lockdowns at this point. As Thomas mentioned, we look to see what the effect is over the longer term. Hopefully, the lockdowns won't be as strict, and there will be a new regimen and way of dealing with it. In terms of biosimilar impact, we had about a $100 million negative impact on AH&R in Q1, and we see that continuing as there will be increased biosimilar competition in China over time. However, there will also be quite a draw for the innovator molecules considering our quality and reputation there. We don't exactly know how it'll play out, but we've been counting on other medicines for growth in China already over the last couple of years, and our major growth drivers have been medications like Perjeta and Alecensa. So we look forward to continuing our strong business in China. You asked about the SERD and potential powering issues. Let me explain a little more about it, and hopefully, that will answer your question. The Phase II acelERA breast cancer trial, which was in second and later lines of ER-positive breast cancer, did not meet its primary endpoint of PFS. That said, it did show a numerical improvement versus a physician's choice of endocrine therapy. The baseline ESR1 mutation patients did have a more pronounced PFS benefit. The response rates were also greater for giredestrant compared to the control arm. Currently, overall survival is still immature, so there are still very few events. However, the tolerability of giredestrant was consistent with earlier studies of giredestrant or endocrine-targeted therapies. The efficacy signals, particularly the greater impact in ESR1 mutation patients, give us good confidence overall. We expect the first-line and adjuvant settings to represent an opportunity for significant impacts of endocrine blockade.
Unknown Executive, Executive
Richard, did we answer all your questions? I hope so. Then I will give a second try to Wimal from Bernstein. Wimal?
Wimal Kapadia, Analyst
So can I just first ask, please, on the new OCREVUS subcu trial? So being every 6 months, if successful, is your assumption that the current over 50% share of switches and new starts going to CD20s will actually be dominated by Roche, given you have the longest duration subcu product? And if you don't dominate, why would you not dominate? And then just tied to that, maybe a quick comment on IP extension from the subcu and/or high dose would be great. And then my second question is just on the filing timelines and the approval time runs for the CD3, CD20s. One of your peers has talked about FDA requiring more data for filing. So and I see that you filed glofit in Europe. But what additional data is required for the U.S.? And how long would that take? And then for mosun, I know you filed in the U.S., and it's a rolling submission. Is that to allow for additional data to be added over the coming months?
William Anderson, CFO
In terms of OCREVUS, yes, we think we already have the outstanding product in the category. One of the key considerations is that we have the only medicine approved for primary progressive disease, shown to delay progression, and we also have outstanding data on disability progression and relapse rate prevention. We also have the 6-month dosing today. We're working on a subcu formulation similar to Phesgo's experience that would offer once every 6 months. Even so, we don't feel that we have to wait on this in terms of leading the product because our current market share in new starts and switches is about double our nearest competitor. So we hope to bring a subcu formulation to patients, but with or without that, OCREVUS will be the leading therapy for a long time.
Unknown Executive, Executive
So the question on filing timelines, let me see. We’ve filed mosun, which has been recommended for approval by the CHMP in Europe. The U.S. filing is on track for mosun. We still expect U.S. approval and Europe approval in 2022, potentially up to 18 months ahead of the closest competitor. We have breakthrough therapy designation in the U.S. as well. We look forward to compiling the data package and submitting to FDA. Regarding glofit, the data is in-house and has been submitted for presentation at ASCO in June. The U.S. filing will occur in the coming months, with expectations high for a successful data submission leading to launch in hematology.
Simon Baker, Analyst
Two, if I may. Firstly, for Bill. I noticed that both Lucentis and Activase were a little weaker than we were expecting. I just wondered if there are any one-off effects within that. A similar question for Thomas on Diabetes Care. You talked about the ongoing pressure from continuous monitoring, but I just wondered if there were any one-off factors within the quarter. And the second one on Diagnostics. I was wondering how sensitive the Alzheimer's test is. I'm asking from the perspective of potential screening at a much earlier stage than we're currently seeing with Alzheimer's, testing potentially at risk populations in their 50s rather than just waiting for the first signs of cognitive decline.
William Anderson, CFO
Sure. Thanks, Simon. In terms of Lucentis, my understanding is there were some ordering patterns in the U.S. that account for that dip. Demand in Q1 returned largely in the early weeks of April. Plus, we expect to see weakness in Lucentis due to Vabysmo being a superior alternative, and that trend may continue. For Activase, there was a shift in business from Activase to TNKase that we're monitoring. That's certainly one of our smaller products at this point. I'll hand it over to Thomas.
Thomas Schinecker, CRO
Thanks for the question. On Diabetes Care, there is a technology substitution ongoing as patients are moving from blood glucose monitoring to continuous glucose monitoring. However, Q1 also had one significant effect last year: the resolution of a rebate dispute, which resulted in the positive effect last year, impacting this year negatively. Even so, we will continue to see a certain level of replacement of BGM through CGM in the near future. Regarding Alzheimer's assays, there are two steps to take. We've examined around 20 different markers to identify the most suitable markers for blood testing for Alzheimer's. They differ from those in spinal fluids, and the amounts in blood are much lower. We've selected the markers with the highest robustness and sensitivity, which would ultimately reduce the need for PET or spinal fluid tests for about 65% to 70% of patients. The PET concordance we show equates to this being a cheaper and faster way to deliver significant results without sacrificing efficacy.
Unknown Executive, Executive
The next question would be Emmanuel Papadakis from Deutsche.
Emmanuel Papadakis, Analyst
Perhaps I could just take one on the Alexion settlement. Just the question really is, why are you including it in core? It seems somewhat contrary to the spirit of core conceptually. Presumably, it represents some upside to original guidance. If so, can you quantify how much? Why hasn't the core EPS guidance been raised accordingly? A question on TIGIT. Just your latest perspectives on SKYSCRAPER-01. I'm thinking more clinically and commercially here. What's your current view of the percentage of PD-L1 high patients that are getting KEYTRUDA monotherapy? Are we likely to hear anything on OS with that initial headline result you're telling us will come in Q2? And what is the median overall survival hurdle in particular that you think you need to show for doctors to switch from using KEYTRUDA monotherapy in that front line, PD-L1 high setting?
Alan Hippe, CFO
Yes, it’s a great question. Why is it core? We follow a long-standing policy here, and under this policy, it is core revenue. We aim for apples-to-apples comparisons every quarter, half-year, and full-year. The SEC discussions about IP, patent, and settlement reporting indicate that this approach is being validated. I would argue that the impact overall, when you look at our numbers, is not minimal, but it's also not very substantial. There are other risks that we have, such as geopolitical risks surrounding us. Our Q1 showed a very good quarter driven partially by COVID as well. The guidance we set in the previous quarter covers a range for impacts. Once we hit half-year, we'll keep you updated.
William Anderson, CFO
Regarding tiragolumab and SKY-01, our confidence in non-small cell lung cancer is based on the CITYSCAPE results. That Phase II study included a broader patient population, but also a prespecified analysis for patients with high PD-L1 in their tumors. The results there were encouraging, reflecting highly beneficial outcomes indicating promising performance. If the results are in line with CITYSCAPE and show significant survival benefits, that would inform our next steps. So we're hopeful to see the major shift we envision. At Q2 readout, there could be clear insights, and we’re eagerly anticipating evaluating overall survival implications.
David Anderson, Executive
The next question would come from Timothy Anderson, Wolfe Research.
Timothy Anderson, Analyst
Yes, a few questions, please. On TIGIT, is the next readout likely to be non-small cell lung? Does that occur in Q2? On China, what’s the biosimilar rate of erosion compared to Western markets in Europe and the U.S.? Regarding the HER2 franchise, you mentioned returning to growth. What are your expectations about AstraZeneca’s impact on Kadcyla?
William Anderson, CFO
Yes, thanks, Tim. The answer on tiragolumab is yes; the next readout with SKY-01 will likely occur in Q2. In terms of biosimilar erosion, the AHR in Western Europe and the U.S. has shown very similar erosion profiles for the three molecules at play. In China, the situation is more complex, with Herceptin being less impacted than Rituxan and Avastin. Due to regulatory changes, there are fewer biosimilar competitors emerging than expected, causing unpredictability. However, our estimates have factored in changes for the year, including our $2.5 billion estimate for biosimilar impacts. Regarding the HER2 franchise outlook, Kadcyla saw 9% growth, demonstrating good growth potential, even with Phesgo and Perjeta together. We have maximized adjuvant settings, seeing diminished growth prospects there but new competitor molecules could impact Kadcyla in the future, which we continue to assess.
Keyur Parekh, Analyst
Hopefully, you can hear my questions okay. Two, please. The first is for Thomas. Can you provide an update on any timelines associated with your next-generation sequencing efforts? I know you previously said you expect to be on the market pre-2025 and you were in beta. Any incremental updates? Associated with that, I think Illumina has discussed recent efforts linked to blood diagnostics. Could you provide insight into Roche’s efforts there as well? Separately, Severin, I'm interested in your thoughts on the capital allocation/M&A environment for Roche. There's been a lot of collection from an XBI perspective. You previously mentioned high valuations, indicating any changes in perception regarding values on early to mid-stage biotech assets.
Severin Schwan, CEO
On the latter question, I would say the following: On one hand, valuations have indeed been extremely high, and they have risen even higher over the last two years. Collection in the market has returned to very high levels we saw in early 2020. So, despite the reduction in prices, we remain concerned about high valuations, thus we will be selective with M&A activity for economic reasons. However, we see increased interest from many companies wanting to work together with us due to limitations in the IPO route. We're particularly interested in early-stage opportunities rather than late-stage. Despite high valuations, we remain focused on evaluating early-stage assets. Thomas, do you want to provide updates regarding sequencing?
Thomas Schinecker, CRO
When it comes to launches, we’ll talk about launches this year and next year at the end of the year. I won’t provide exact timelines for any ongoing programs like mass spectrometry and sequencing at this time. What I can confirm is Roche's commitment to investing significantly in the space. Regarding early cancer diagnostics, as you mentioned in relation to GRAIL and Illumina, there’s great potential here, and we’ve also made investments in the space. We're actively involved with FMI regarding cancer diagnostics and continue to monitor developments in that area.
Sachin Jain, Analyst
Three, if I may. First on SKYSCRAPER-01 for Bill. Any broad visibility at this stage as to how the control arm is performing and whether you expect to repeat at the beta CITYSCAPE where the comparator arm underperformed? Just trying to get a sense of how focused you think doctors will be on absolute OS and PFS relative to prior KEYTRUDA in the Phase III setting. Secondly, on SKYSCRAPER-06, I understand there may be an upsizing decision due to a blinded interim at year-end. Could you confirm that and comment on the dynamics of that process based on SKY-01? Finally, on Vabysmo, your comment on the J-code being a target for Q3 or early Q4 was later than I expected. Could you share more color on the paid claims process you mentioned, how we should view sales cadence leading up to a permanent J code? You've previously expressed confidence in exceeding consensus of around CHF 300 million. Does that remain the case?
William Anderson, CFO
Thanks, Sachin. Regarding SKY-01, I can’t provide specific visibility on how the control arm is doing, as we don’t typically monitor that directly. We look at the event timing compared to our estimates. Comparing our study timing to expected timelines could give some indicators, but it's not revealing enough. If we have a result that is clear, the effect of the control arm dissipates. In the CITYSCAPE study, even if the control arm underperformed, the treatment arm looked incredibly strong. I believe if we had a strong issue going forward with SKY-01, it would hold less relevance about the control arm. For SKY-06, I can confirm your indication. That decision on upsizing and going into pivotal trials will depend on the look, and we’re remaining blinded to results but are optimistic overall. For Vabysmo, people often focus on the permanent J code as a simple measure, but the more significant step is the paid claims process. Once doctors see paid claims, they gain confidence in prescribing, and although the permanent code will ease administrative burdens, it's the paid claims that lead to actual usage. My confidence in Vabysmo remains unwavering.
Luisa Hector, Analyst
So a couple of follow-ups. On Vabysmo, could you share with us any color on which patients are the early adopters? Thinking about the ex-U.S. launch, it's a new market for you, so we still have approval/reimbursement negotiations. Is this more of a 2024 revenue story? That is Vabysmo ex-U.S. Can you provide a sense of relative potential U.S. versus ex-U.S. there? For the DMD gene therapy, you mentioned the Phase III trial has been announced. Any additional color and timelines for when data could be available?
William Anderson, CFO
In the U.S. for Vabysmo, existing patients inadequately benefiting from current therapies have been our first cohort of early adopters; they include those needing frequent visits every month. Patients with more chronic disease conditions are also taking advantage of our therapy, as is evident from initial reports from healthcare workers. Regarding ex-U.S. launches, in Japan, we have achieved approval and look forward to launching in the summer with reimbursement. In Europe, we anticipate approval later this year, which would lead to additional growth in 2023 and reach the full impact in 2024. Therefore, while momentum will begin in 2022, the full impact across ex-U.S. markets will continue into 2024. Regarding Sarepta and the gene therapy Phase III trial, we are excited about this development. Early signs have been positive from the ongoing open-label study; the Phase III study is underway, which we aim to conclude by year-end 2023.
Emily Field, Analyst
Just 2, please. Firstly, just on the SERD, I was wondering your level of confidence that you'll still see efficacy in the broader all-comers population in early breast cancer in the first line, given your commentary on the benefit in the ESR1 mutants in Acelera. One of your competitors has stratified their first-line trial to only include those pieces in. And just on Polivy, I believe you mentioned approval in the U.S. this year. Has POLARIX been filed in the U.S.? If you could just confirm that, and any initial thoughts on what that launch curve could look like next year in the U.S.?
William Anderson, CFO
Great, thanks, Emily. So regarding giredestrant, I will refer you to ASCO for deeper discussions about potential efficacy in broader contexts. Our data indicates we don't believe giredestrant will only show benefits in ESR1 mutation-positive patients; we aim to prove significant benefits in both first line and adjuvant settings. For POLARIX, we haven't filed yet but remain in close communication with the FDA about our timeline. They were aware of our schedule for readouts and have indicated a desire for more PFS data related to the filing; however, they’re not waiting for OS data as that isn't the standard for these trials. The filing is planned to occur in the middle of the year, still expecting full approval by year-end. We anticipate rapid uptake upon launch due to the safety profile and significant benefits shown in the trial.
Peter Welford, Analyst
I'll be brief. A few quick ones. On diagnostics, first of all, you've talked about the impact on your outlook for COVID-19 diagnostics for this year overall. Given the changes, should we consider most of the decline driven by what you refer to as Point of Care diagnostics, which includes Liat? Could you address how much of Liat use at the moment you think is driven by COVID-19? Is molecular under the new definition likely to be more sustainable? Do you also see significant declines already in 2Q as you indicated for PCR tests? Secondly, are we to understand that detailed data for Mircera will be presented at ASCO? If not, is it an opportunity to ask more questions? On the response, I believe you noted increased response rates overall in addition to the ESR1 mutant patient population.
Thomas Schinecker, CRO
Yes, looking at the rapid antigen business, the Point of Care category includes considerable fluctuations reflective of government orders; we experienced being sold out in Q1. The overall impact, yes, will likely see continued declines related to COVID, especially within Liat and rapid test sales. As for PCR, it's a more stable offering due to the number of customers. That said, we still expect declines as testing for travel needs reduces, especially due to diminished case counts. Regarding Alzheimer’s testing, we are gearing towards testing earlier than cognitive decline signs, focusing mainly on precision and ensuring better access to these diagnostic methods.