By Peter Wallace, Partner in Consulting
Last week’s blog discussed the cost effectiveness of biosimilars and the extent to which they offer value for money for healthcare systems.1 This week’s blog, by Peter Wallace, our lead Partner for digital transformation of Life Sciences and Healthcare, looks at the issue through the lens of the pharma company.
Given the growing interest in biosimilar treatments, how will they disrupt the current market in large molecule therapies?
Biosimilar therapies are copies of large-molecule, biologic drugs. They differ from generics in that they are not exact copies of the original drug but, rather, a similar molecule that delivers an equivalent clinical outcome to the branded drug. Where small molecule drugs comprise 10s of atoms, biologics (and biosimilars) comprise 10s of thousands of atoms.
Comparing biologics and biosimilars has been contrasted with comparing snowflakes – while both look broadly the same and deliver a similar outcome, the individual make-up and structure of each is different. This makes the approval process more complicated and more costly than for generics, as you need to run a clinical trial to demonstrate the equivalence in clinical outcome.
For example, the cost of taking a biosimilar to approval can be as much as $250 million (compared to $2-3 million to register a generic drug).2 While this is still less than the $2.2 billion that a novel therapy costs,3 it is still significant. The complexity of biosimilars also makes their manufacturing more challenging and more costly. All of the above is reflected in the pricing of biosimilars – whereas generic drug prices can be as much as 80-90 per cent cheaper than branded drugs,4 biosimilar drugs tend to be discounted by around 15-20 per cent compared to the price of the branded drugs.
Moreover, when you look at the top-selling drugs, these are dominated by biologics. Of the 10 top-selling drugs in the US in 2018, 8 were biologics (as were 13 of the top 20). 5 This accounted for over 85 per cent of the revenue of the top 10 (and 72 per cent of the revenue of the top 20). These data make biosimilars look like an attractive proposition, and all of the big players are monitoring the situation carefully. In an investor call on 16 September 2019, Bill Anderson, the CEO of Roche Pharmaceuticals stated that he expected erosion of $9.6 billion of Roche’s portfolio (Herceptin, Avastin, Rituxin/MabThera) by 2023, due to biosimilar competition.6 Roche posted revenues of $57.8 billion in 2018, with $44.7 billion coming from its Pharma division, so $9.6 billion loss of revenues is significant.
So, while there is a strong value case for biologics from a healthcare perspective, how does it look from the pharma company’s perspective?
First off, there are significant structural hurdles to overcome with biosimilars, particularly in the lucrative US market. While the first biosimilar approval in Europe was back in 2006, the first US biosimilar approval was in 2015. To date, while there have been over 20 biosimilar approvals in the US, only 9 have actually been launched. Moreover, these have, for the most part, not gone after the really big players, although this may be changing with the 2019 launches of Mvasi and Kanjinta (biosimilars for Avastin and Herceptin, respectively).
The challenges with the US market are due to a number of factors. The pricing model and mechanism of list prices and rebates creates a barrier to biosimilar entry, as rebates are voluntary, and the patent holder can withdraw them at will. In addition, the fragmented nature of the health system does not create any incentive for physicians to use biosimilars over branded treatments. Biosimilar adoption in Europe is more advanced than in the US, due in part to the role that the national health systems play in promoting the biosimilar treatments over the original biologic.
But, what do the financials look like for a pharma company launching a biosimilar?
The basic tenet of biosimilars (as for generics) is that increased competition will drive down the treatment costs. As mentioned above, biosimilars currently earn on average a discount of 15-20 per cent of the price of branded drug, although it will be interesting to see if this discount holds over the long run or whether prices drift downwards. So, are biosimilars a good or a bad bet for pharma companies?
Humira, one of the world’s top selling drugs with sales of around $20 billion a year, provides a good illustration.7 In 2018, five biosimilars of Abbvie’s Humira were approved – Amgevita (Amgen), Imraldi (Biogen/Samsung), Cyltezo (Boeringer Ingelheim), Hyrimoz (Sandoz) and Hulio (Mylan). Of these, four are currently being marketed in various European countries (Amgevita, Imraldi, Hyrimoz and Hulio). Indeed, by approving five biosimilars, the European Medicines Agency (EMA) deliberately created a competitive landscape.
In the 4th Quarter earnings call, on 25 January 2019, Abbvie executives stated that they expect to lose $2 billion in sales ex-US in 2019, due to biosimilar competition.8 If we assume that 75-80 per cent of these lost sales happen in the European markets, and that the biosimilars are discounted at 20 per cent compared to the price of Humira, and that each of the competing companies picks up an equal share, this would give each competitor European sales of around $320 million. These revenues may increase in 2020 and beyond, as adoption increases.
This does assume, however, that prices of biosimilars hold steady against the Humira price, when competition among the biosimilar manufacturers may drive prices lower year-on-year. Moreover, a future unknown, is what might happen in the US market when Humira’s patent protection expires in 2023?
If the same logic (multiple biosimilar competitors and ex-US focus), is applied to a drug with smaller annual revenues of say $5 billion, the potential earnings for the competitors to the original will be much lower. For example the share to each biosimilar manufacturer would be around $125 million; or if annual revenues, were only $2.5 billion, the share would be around $63 million. Suddenly, especially if you take into account the fact that some payers are achieving increasingly larger discounts, (biosimilar discounts to brand across Europe have ranged from between 10 per cent to as high as 80 per cent in some Nordic countries),9 the numbers do not look quite so attractive.
So, back to the original question – just how attractive an opportunity are biosimilars for pharma companies? Given the above, it is just too soon to say definitively. My personal opinion is that biosimilars will be adjacenct to the core mission of the pharma company (which will continue to be bringing novel therapies to serve unmet patient need). Moreover, most pharma companies who embrace biosimilars will already have competency and expertise in the specific therapeutic area, enabling them to take informed decisions on where they launch their products.
A key question, and currently one we don’t have an answer to, is what role any non-traditional entrants might play in this space? As even at the numbers above, biosimilars may still look attractive to these players. This space is one I will continue to watch with interest.
4 www.fda.gov Price reductions are dependent on the number of generic manufacturers – the more manufacturers, the greater the price competition. For small molecule drugs, the stable price level is typically reached within 12-18 months of patent expiry
9 https://www.biopharmadive.com/news/humira-biosimilar-discounting-aggressive-as-competition-enters-in-europe /541282/