While still a relatively new area of biopharma, the biosimilar market has been getting more and more competitive, with huge pipelines of products in development, and a multitude of candidates targeting each of the major blockbuster biologic brands.
With this much value at stake, a wide range of players, from regional biologic manufacturers to global Pharma, have sought opportunities to enter the market. In many regions, particularly the highest value US market, the path ahead for biosimilars is still taking shape, injecting a significant amount of uncertainty into the best business model to extract value from the sector. But, events from the past few weeks have shed light on how the biosimilar market may grow, change and become the next generation of generic medicines:
• The FDA provided guidance on "interchangeability" – bringing some clarity to biosimilar developers around data requirements for biosimilars to be viewed as substitutable for branded products.
• The first biosimilar monoclonal antibodies emerged for multi-billion dollar oncology indications – Celltrion's Truxima (rituximab/Rituxan) received new biosimilar EMA approval, and the path ahead became clearer for US approval of Mylan / Biocon's trastuzumab (Herceptin).
• The CEO of Allergan, Brent Saunders cited vast biosimilar pipelines for key blockbusters as potential drivers for heavy discounting and vanishing margins, raising concerns that the increasingly crowded field poses a threat to the viability of the current biosimilar business model.
Requirements for approval and use of biosimilars are becoming clearer across the US and EU. As such, first-to-market biosimilars appear poised to reap significant shares of extremely large markets.
However, with pipelines of competitor products, the relatively high development costs associated with biosimilars, and the inevitable discounting and undercutting required to drive uptake of late market entrants, the biosimilar business model has been called into question even before it becomes established.
What does that mean to key players in the space?
The path to "interchangeability" is clearer in the US, but questions remain
The recent FDA guidance finally set out the key parameters that biosimilar developers will need to consider in order to produce a fully substitutable product, one that will be "interchangeable" for a branded biologic – much in the way small molecule generics are today.
While this information from the FDA is helpful, more specifics are needed. Uncertainty around the type of data required to demonstrate interchangeability with a reference product is based around a couple of different factors: the complexity of the molecule, the ability to analytically characterize structural and functional differences and the product specific immunogenicity risk.
To provide this data, developers may be asked to conduct additional preclinical and clinical work, particularly for highly complex products such as the monoclonal antibody products. This work will likely involve one or all of the following:
• Additional preclinical analytics to characterize structural and functional differences to the established reference product
• A switching study with a US-licensed reference product – study or studies would have a primary endpoint of PK and PD, with secondary endpoints looking at safety, immunogenicity, and efficacy
o Developers will need to consider sample size, number and duration of switches, dosing, indication, patient population, and route of administration that provided extrapolation of the data to the full label of the biosimilar
• Post-marketing surveillance data from the licensed biosimilar product.
The FDA recommends frequent communication during this process, but the burden of how this guidance is implemented and the potentially complex nature of designing the switching studies, will fall on the developers themselves and will almost certainly require additional time and cost to bring these products to market, making the barrier to entry that much higher.
High value biologics markets see new approvals
More than ever, it is critical for biosimilars to begin to penetrate the higher value biologics markets – particularly in Oncology and Immunology where they have come to dominate whole segments of the market. The good news for biosimilar developers: it appears that the shift has begun and first-to-market biosimilar products are approved and even launched across a number of classes, including the anti-TNFs (Humira, Enbrel, Remicade) in RA, IBD, and psoriasis, and HER2/neu receptor inhibitors (Herceptin) and anti-CD20 (Rituxan) cancer therapies targeting large solid and liquid tumor indications.
Together, these products alone accounted for more than $45 billion in 2016 sales worldwide, according to EvaluatePharma. Considering the potential, there is significant interest in capturing even a small share of those sales.
Should these products become interchangeable and readily substitutable, capturing a significant share of the market would be incredibly lucrative, particularly if that switching behavior was driven by payors who stood to save substantial amount over the brands that currently dominate.
The question remains though, how low must the price be to be to encourage that switch?
Competition may drive prices down sooner than anyone expected
In the US, the question of pricing threshold has yet to be established. Around the world, particularly in countries with a single-payor government healthcare system, the picture is clear: biosimilars can quickly steal share when pricing hits levels normally seen with small molecule generics. The successful uptake of biosimilars in Norway serves as an example.
Norway has embraced biosimilars in a way that few other countries have, largely driven from a position of bargaining strength centered on the country's tender system, which is administered through the hospital system and provides greater oversight and financial governance. Through this tender process, Norway has successfully generated significant savings (e.g. Celltrion secured the tender for infliximab by providing a 72 percent discount over branded Remicade).
Possibly in response to those significant discounts, Norway has embraced the idea of biosimilars: physicians sponsor "non-medical" switching from branded products based solely on cost savings, and even sponsor clinical trials of key biosimilar products to better demonstrate their non-inferiority.
As a result of this proactive approach to biosimilar use, by 2016, biosimilar products had captured significant shares of many key markets including >90% of infliximab and >80% of etanercept prescriptions.
While it is tempting to brush off the Norwegian example as a singular success story, it should be noted that it is a trend that already extends beyond Norway, with Scandinavian neighbors, Denmark and Finland already adopting similar practices with similar results.
Furthermore, as the US path to interchangeability becomes clearer and the political climate continues to drive healthcare costs to be an ever-increasing issue, even the typically price-insensitive US market likely will begin to change significantly.
In the US and EU, the biosimilar pipeline is extremely crowded. Current estimates show more than 30 candidates in development for biosimilars of Humira, Enbrel, and Herceptin, and more than 50 for Rituxan. Not all those products will make it to market, however. It will only require a couple of additional entries for each product to drive up the competition. As cost conscious settings become the norm, it is likely only a matter of time before the dynamics of the biosimilar market more closely resembles "biogenerics."
As the business model in biosimilars continues to evolve, the higher cost of development coupled with potentially lower prices, will come to put a significant squeeze on margins. While this may change the attractiveness of the sector for a number of players, including large players like Allergan and Merck KGaA - who recently announce it will divest its biosimilar division – the revenues generated from such products would still be significant and attractive to a large number of players, whether on a single asset basis or as part of a biosimilar portfolio. As a result, strategically positioned, the road ahead for biosimilars looks promising for industry and patient interests alike.
Author Bio:
At Back Bay Life Science Advisors, Dr. Stephan Gauldie guides global life science companies in strategic franchise building, M&A licensing strategy, buy side diligence, liquidity planning and positioning for emerging growth companies - with more than 15 years of experience across drug development research, market analysis, and strategy consulting. Prior to joining Back Bay, he led the Commercial Research Group at Decision Resources and was a Principal Analyst at Wood Mackenzie, leading teams that covered US and EU-based pharmaceutical companies, as well as CNS/Pain and Immunology therapeutic areas. Reach him at sgauldie@bblsa.com.
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