Biosimilars - a lucrative business
opportunity, but with many challenges
Biological drugs are becoming an important component of modern
healthcare, and more and more of new drug approvals fall into this category.
Biosimilars – their generic versions – are widely viewed as a promising growth
opportunity, especially by companies focussed on generic markets. Patents no
longer cover the first wave of biologicals introduced about a decade ago, and
these markets are up for grabs. A handful of pharmaceutical producers in India
and several abroad are gearing up to cater to this opportunity, but the path to
market is not as easy as for small molecules, given the significant
intellectual property, clinical and regulatory challenges.
What is a biosimilar?
Simply put, a biosimilar is a biological medicine that is
similar to another that has already been approved for use. While they are not
exact copies of the drug from the innovator that they aim to mimic, they do
have a very similar therapeutic value. This equivalence needs to be proven by a
fairly arduous evaluation of quality, bioactivity, efficacy and safety – to
convince regulators who grant the approvals that any differences are not
clinically significant.
The market opportunity
The markets for biosimilars is reckoned to have reached $4.4-bn
in sales in 2017, and is forecast to reach $25-bn by 2025, representing an
impressive CAGR growth of 34%. This is still small when compared to the overall
size of the global pharmaceutical industry ($1.1 trillion in 2015). The other
point to be noted is that biosimilars still have a small share (2-3%) of the
overall market for biological drugs, but this will rise as new drugs enter the
market and regulators, prescribers, payers and patients all become more
comfortable with these alternatives.
About 12 major biologicals with combined global sales of more
than $67-bn currently are expected see generic competition once their patents
expire by 2020. Many more will go off-patent post this period, presenting
additional business opportunities.
Several companies are eyeing this market – including about a
dozen companies in India. In the business for small molecule generics – the
bread and butter business for all Indian generic players – competition has
eroded prices and margins very significantly in recent times. This is most
evident in the US market – the most important – where besides consolidation
amongst buyers, regulatory scrutiny of manufacturing assets in India have also
increased. This has squeezed margins for nearly all generic producers, and
forced them to relook business strategies. One business some are eyeing in ther
quest for better returns is biosimilars.
The growth drivers
The desire to curb healthcare costs is an important factor
driving adoption of biosimilars – an aspect that assumes great significance
given the high costs of most of these drugs. This is all the more so for
developing countries as India, where few – even amongst the upper middle class
– can afford to pay out of their pockets for drugs that cost tens of thousands
of rupees for a single dose! In developed countries, with far more
sophisticated markets and wide patient coverage through insurance, many payers
are eagerly awaiting biosimilars for their cost effectiveness.
The competitive landscape
Most experts agree that the biosimilars business is unlikely to
see the level of intense competition seen in small molecule generics, for
several reasons. For one, the manufacturing of biologicals is a lot more
demanding in terms of capital required; the complexity of the manufacturing
process (mostly involving fermentation), and the intricacies of downstream
processing & purification. The skill sets required in the business of
biosimilars is very different from that widely available in the pharmaceuticals
industry in India, and can be a limitation to rapid scale-up of competencies.
The players in the global biosimilars space can be broadly
lumped in three broad categories: innovator companies who are keen to manage
the drug through all stages of its lifecycle, including after expiry of its
patent; small molecule generic players eyeing more lucrative business
opportunities; and pure-play biosimilar companies.
There are only a few companies in the first category, but they
do have the advantage of intimate knowledge of the product and its market. But
they are handicapped by high cost structures and conflict of interest between
the generic and innovator parts of their portfolios. In the second category are
several Indian generic companies, whose biosimilar forays are still restricted
to less semi-regulated markets (including India). While most do not have much
experience with biologicals, they do understand manufacturing, have strong
marketing presence, including in important overseas markets, and understand
price-focussed selling that the generic business demands. The pure-play
biosimilar producers include some ‘virtual’ companies, often staffed with
experts from the biologics industry. These companies are likely to outsource
manufacturing to contract manufacturers and even out-license products to
companies with the ability to take it through to commercialisation.
Companies eyeing this opportunity must carefully evaluate
several factors. The first is the competitive landscape amongst generic players
themselves. There are several first- and second-generation products where a
number of players jostle for market position, and margins can come under under
pressure here too. The second factor to keep in mind is that innovator
companies do still have some tricks up their sleeves, including the ability to
slash prices to ward off competition. Another aspect to consider is the
possible emergence of newer, more effective therapies that could edge out older
generic versions from the market.
The regulatory challenges
Then there are the regulatory hurdles to overcome. Thanks to
intense pressure from innovator companies, regulators in the all-important US
market have been slower than their counterparts in Europe, for instance, to
permit biosimilars. Their reluctance has been largely on the basis that unlike
small molecules, for biosimilars the process, in a sense, makes the product. In
other words, even minor deviations from the (often secretive) process of the
innovator, as practiced by the generic supplier, could alter product
characteristics and therapeutic relevance. But these concerns are exaggerated
and regulators have slowly come to accept that biosimilars have merit and there
is little reason to exclude them from the market.
As a result, in 2017, the US Food and Drug Administration
granted a record number of approvals for biosimilars and the number of
applications under consideration by the European Medicines Agency also
continues to rise.
The development risks of biosimilars are also markedly higher
than for small molecules. Their manufacture, almost without exception, involves
living systems and cell lines, and a significant portion of manufacturing costs
comes from downstream purification. The possibilities of success are in the
range of 50-75%, compared to upwards of 90% in the case of small molecules.
A rewarding and growing business
But for those companies that do manage to overcome the
challenges, the market can be rewarding. Price erosion for biosimilars is never
likely to be as precipitous as for small molecules.
Biosimilars will also fulfil an important need for lower-cost
advanced therapies and have been welcomed by countries such as India. The
domestic market here will in itself offer significant opportunities for local
companies operating in this space, but like in small molecules most leading
players are looking to hone their skills here, test the local waters and then
venture overseas. Partnerships will be one way in which they could reduce
risks, make-up for lack of some competencies, and quicken the time to entry to
market.
Chemical Weekly Issue date: 9th October 2018
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