Biosimilar Conversion: How Slippery is the Slope?
There is no doubt that massive capital has lined up behind biosimilar drug development. Many of the top biologics will be losing patent protection over the next decade or have already lost it. And the Biologics Price Competition and Innovation Act (BPCIA) of 2010 has finally defined the pathway for biosimilars to enter the U.S. market. But there is less certainty about the extent to which biosimilars will capture the biologics market. Many commentators have predicted that biosimilars’ encroachment on branded biologics will be modest. Recent signs suggest that, once biosimilars enter the global market, they may quickly capture a significant share—the slope may be more slippery than expected.
The opportunity for biosimilars is defined by the size of the biologics market and the coming wave of patent expirations. Global sales of biologics were $157 billion in 2011 and are expected to reach $200 billion in 2016. In 2014 seven of the top ten best-selling drugs were biologics. The biologics that have recently come off patent or are coming off patent in the next five years have sales of $100 billion globally—$50 billion in the U.S. alone.
Most analysts have predicted that conversion of these markets to biosimilars will be relatively small. According to one source, the consensus has been that the top ten biologics facing patent expiry will lose only 21% of their sales by 2020, declining from $62 billion to $49 billion. This is far less than the conversion we have seen from small-molecule brand-name drugs to generics. Between 1994 and 2014, generic products’ share of total prescriptions in the U.S. went from 36% to 86%. And the rate at which generics consume the sales of their branded equivalent has become extremely rapid. In 2007–2008 the average brand retained only 19% of its prescription share six months after generic entry and only 15% at one year. In part because of this rapid conversion, the U.S. healthcare system has saved a total of $1.5 trillion in the past 10 years by purchasing generic drugs instead of their brand-name equivalents, with $239 billion of that savings in 2013 alone.
Why are most predictions for biosimilar conversion so modest compared to our experience with small-molecule generics? There are many good reasons. Probably the strongest of these is the difference in development costs. According to one estimate, the cost of developing a biosimilar is between $100 million and $250 million, compared to only $1 million to $4 million for a small- molecule generic. There are other reasons as well. Unlike small-molecule generics, biosimilars are not certified as interchangeable with the reference drug, so they are less likely to benefit from automatic substitution at the pharmacy. Legal hurdles concerning patents and trade secrets create risk and may keep smaller firms out of the industry. Finally, unlike small-molecule generics, biosimilars will require marketing to make doctors aware of biosimilars and to convince doctors that biosimilars are reliable substitutes for their reference drugs.
The standard projections for biosimilar conversion are shored up by the actual experience in Europe. Biosimilars were first marketed in Europe in 2007, but they represent a small percentage of biologics sales. In 2011, biosimilars made up less than 1% of total biologic sales in Europe. And among biologics that had experienced patent expiry, biosimilars accounted for only 10% of the market. This slow uptake has been explained by small price discounts (30%–35%) and a lack of automatic substitution at the pharmacy.
Recently, there are signs that biosimilars penetration into the biologics market may be deeper than previously expected.
First, passage of the BPCIA in the United States opens up the largest biologics market in the world to biosimilars. This is a game-changer. It greatly increases the ratio between potential sales and development costs, which means that each development dollar may have a larger impact.
This could enable biosimilars developers to pursue a strategy of price discounting designed to greatly increase their market share. Passage of the BPCIA also promotes doctors’ knowledge and acceptance of biosimilars.
Second, contrary to expectations, some biosimilars have recently implemented major price discounts—and not just in emerging markets. A biosimilar version of Remicade, a biologic indicated for rheumatoid arthritis, Crohn’s disease and some other conditions, was first launched in Europe in late 2013. In Norway, a price war between two manufacturers of Remicade biosimilars has led one of them, the Finnish drug company Orion Oyj, to sell its biosimilar at a discount of 69%. As a result, Orion Oyj has captured 50% of the market.
Third, there may be signs of therapeutic switching from branded biologics to biosimilars in the same drug class but with a different active ingredient. For small-molecule generics this kind of switching has not been the rule, but it occurs with increasing frequency, especially for the most profitable drugs. For example, in the market for cholesterol-lowering drugs (statins), when a generic form of Zocor launched in 2006, not surprisingly it devastated sales of Zocor. But it alsopulled substantial sales from Lipitor, the market leader, which dropped from 44% of the market in 2006 to 26% in 2009.
A similar process may be occurring with Remicade and Humira, another biologic with similar indications. AbbVie’s Q2‑2015 financial statements reveal that although Humira experienced a 29% growth in U.S. sales over the year, international sales fell 14%. Investors wondered whether this was caused by switching from Humira to the heavily discounted biosimilars of Remicade.
AbbVie’s CEO flatly rejected this explanation and attributed the decline to “shipment timing.” Nevertheless, this situation warrants close attention in the coming months.
Fourth, firms dedicated to biosimilars are entering the market, and their strategy is centered on price competition enabled by cost reduction. A case in point is the Boston-based Epirus Biopharmaceuticals. It is focusing on biosimilars and pursuing a strategy of discounting. According to Epirus’s 10‑K, “In many countries outside the United States, public and private payors are seeking to lower the cost of biologics and improve patient access to these important medications. This favors biosimilar versions of biologics that are priced at a discount to the branded reference products.” To make low prices profitable, Epirus is pursuing efficiency of development and manufacturing. First, it is focusing on one class of biologics, the highly profitable MAbs, to take advantage of the synergies of manufacturing and selling different drugs in the same class. Second, it plans to sell its biosimilars worldwide to take advantage of economies of scale, and it will start with emerging markets to generate near-term revenue and gain experience (it has already launched a biosimilar of Remicade in India). Third, rather than learn the ropes of drug development and sales in every country, it is partnering with local companies that understand the regulations and marketplaces of their particular region.
Biosimilars are clearly the wave of the future, but it is still an open question how big that wave will be. These signs all point to a biosimilars market that is much more competitive than previously expected.
OnPoint Analytics, a litigation consulting firm, compiles a wide variety of pharmaceutical data and tracks important market developments, including emerging trends for biologics.