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A New FDA Approval Could Boost This Company's Top Line

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Roche's (NASDAQOTH: RHHBY  ) Gazyva -- a potential blockbuster treatment for previously untreated chronic lymphocytic leukemia, or CLL -- was recently approved by the Food and Drug Administration, marking the company's fifth cancer treatment approval in the U.S. over the past three years. Gazyva was discovered by Roche's wholly owned subsidiary, Glycart. In the United States, the drug is part of a collaboration between its subsidiary Genentech and Biogen  (NASDAQ: BIIB  ) .

Gazyva, which is also Roche's first approved treatment under the FDA's breakthrough therapy designation, could generate $1.5 billion to $2.5 billion in peak annual sales for the company. What does this approval mean for Roche shareholders and the rest of the market for CLL treatments?

Replacing Rituxan
Gazyva has been earmarked to become Roche's eventual replacement for Rituxan -- the CLL, non-Hodgkin lymphoma, and rheumatoid arthritis treatment that generated $7.5 billion in 2012 sales. Rituxan was also originally created in collaboration with Biogen.

Rituxan's patents will expire in 2013 and 2018 in Europe and the U.S., respectively, and Roche expects the drug to face generic competition by 2015. Teva Pharmaceutical (NYSE: TEVA  ) and Lonza had already been creating a biosimilar version of Rituxan, although the companies abruptly halted their efforts last October due to regulatory concerns.

95% of CLL cases occur when a protein known as CD20 appears on the surface of white blood cells known as B-cells. Like Rituxan, Gazyva is a monoclonal antibody which was lab-created and programmed to target the CD20 protein on the surface of B-cells. Gazyva attacks both the targeted cells directly and assists the body's immune system in its response.

When combined with the chemotherapy treatment chlorambucil, Gazyva exhibited an 84% reduction rate of the disease worsening in comparison to patients receiving only chlorambucil.

Two promising new signaling pathway treatments
CLL is one of the most common forms of blood cancer, with more than 15,000 new cases expected by the end of the year. In addition to Roche, Pharmacyclics (UNKNOWN: PCYC.DL  ) and Gilead Sciences (NASDAQ: GILD  ) are two other names to watch in the CLL market.

Pharmacyclics' ibrutinib, a new CLL and mantle cell lymphoma, or MCL, treatment that is being co-developed and co-marketed with Johnson & Johnson (NYSE: JNJ  ) , has been pegged with a peak annual sales estimate as high as $9.2 billion. However, ibrutinib treats patients with relapsed CLL, rather than the first-line group that Roche's treatment was approved for.

During clinical trials, relapsed patients dosed with ibrutinib showed an overall response rate of 71%. Ibrutinib was also granted a breakthrough therapy designation by the FDA, and could be approved by early 2014. Ibrutinib attempts to inhibit the spread of BTK, a signaling kinase (enzyme) in the B-cell receptor pathway, which assists in cancer cell survival and proliferation.

Gilead Sciences' idelalisib is another new second-line treatment for CLL and indolent (slow-growing) non-Hodgkin lymphoma. Gilead's treatment targets a signaling pathway known as PI3K. When the PI3K pathway is overactive, cell death is reduced, allowing cancer cells to proliferate more easily. Gilead halted a phase 3 study of the drug on CLL patients earlier than anticipated, due to overwhelmingly positive results.

During clinical trials, Gilead tested a combined dose of idelalisib and Roche's Rituxan to a dose of Rituxan by itself. In a phase 2 trial, the combined treatment demonstrated an overall response rate of 97%.

Identifying the true competitors
Although ibrutinib and idelalisib are both promising second-line treatments for CLL, they should not be considered competitors to Roche's Rituxan and Gazyva, which are both first-line treatments. Roche has handily dominated the market for first-line CLL treatments since the approval of Rituxan for the indication in 2010, and every major combination first-line regimen for CLL currently consists of Rituxan.

GlaxoSmithKline and Genmab's Arzerra, which has also been granted a breakthrough therapy designation by the FDA, is the closest prospective first-line competitor, but faces a steep uphill battle in a market dominated by Roche. Celgene also made an attempt to expand the indication of its blockbuster treatment Revlimid as a first-line treatment for CLL, but the trial was cancelled in July due to unfavorable results.

The Foolish takeaway
It's been a good year for Roche so far. In September, the company's subcutaneous version of its top-selling breast cancer drug Herceptin, developed by Halozyme Therapeutics, was approved in the EU. That allayed concerns that the drug, which generated $6.6 billion in sales in 2012, would face severe declines when its patents expire in 2014 and 2019 in Europe and the U.S., respectively.

Now, Roche has managed to keep another pillar of growth from collapsing by introducing Gazyva as a potential successor to Rituxan. In addition, Roche is pursuing approval for other indications for the drug, such as diffuse large B-cell lymphoma and front-line/refractory indolent non-Hodgkin's lymphoma. Those additional indications could unlock Gazyva's true value over the next few years, and maintain Roche's top line growth despite patent-related shifts in its drug portfolio.

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