By Ben Hirschler
LONDON (Reuters) - The biotechnology sector is in a "bubble", pushing prices for medium-sized companies with experimental drugs in late-stage development out of reach, the chief executive of drugmaker Roche (ROG.VX) said on Tuesday.
"I think this bubble will burst at some point," Severin Schwan told Reuters in an interview during a visit to London.
The Swiss company continues to screen for promising acquisitions but the price of potential targets was now "far, far away" from fundamental value, he said.
"For us, none of them make sense and when I see this all the time, I am worried that valuations are too high."
Schwan said he had grown increasingly wary about a run-up in biotech stock prices in the last two years, despite a continued wave of premium-priced deals by rivals looking to replenish their drug pipelines.
"This whole segment is overvalued. The more time goes by, the more I am worried that this whole thing will collapse at some point and it will not be not good for the industry if there is too much volatility," he said.
Roche would continue to look at smaller acquisitions of firms with early-stage compounds several years from reaching the market, he said, but multibillion-dollar deals like last year's $8.3 billion purchase of InterMune were very unlikely.
"We do lots of early-stage deals and we are doing almost nothing late-stage, with InterMune a special case," he said.
InterMune made sense because Roche already knew the company well and was able to take a different, and more bullish, view on its prospects than the wider market.
In the event, Roche was vindicated as InterMune's leading drug for a potentially fatal scarring lung disease went on to be a commercial success.
Schwan said the bar was set high for Roche when looking at acquisitions, since the company had made good progress with its internal pipeline of new medicines and had plenty of opportunities for investment.
Roche is keen to bring more new products to market in a two-year window before it faces cheap copycat competition to some of its older biological medicines.
Schwan said he still anticipated that so-called biosimilar versions of cancer drugs Herceptin and Rituxan would be launched by competitors in Europe towards the end of 2017.
But he was sanguine about this since the expiry of patents saves money for healthcare providers and gives "oxygen" to the system by freeing up financial resources to pay for new, innovative drugs.
Roche, the world's largest maker of cancer drugs, expects that some of the money saved will go into the hot new field of cancer immunotherapy, which some analysts have earmarked as a future $35 billion to $50 billion-a-year market opportunity.
Schwan said such numbers could be realistic if experimental medicines continued to perform well in clinical trials.
(Editing by David Clarke)