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Why Big Pharma Isn't Scared of Biosimilars

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he first rule of investing in pharmaceuticals is that when a drug loses patent protection, the drug maker loses sales. Remsima, a biosimilar version of Remicade, has been on sale in Korea since September 2012. Why haven't Remicade sales there fallen off a cliff?

Consider Eli Lilly's Zyprexa. It's not a biologic, but it lost U.S. patent exclusivity in October 2011. During that year, Lilly recorded Zyprexa sales of $2.17 billion in the United States. One year later, that figure fell to just $360 million.

On the other hand, Amgen's (NASDAQ: AMGN  ) blockbuster biologic, Enbrel, was expected to lose US exclusivity in October 2012, but its exclusivity was extended to 2028. For the first nine months of 2013, Amgen's portion of U.S. Enbrel sales actually increased year-on-year from $2.88 billion to $3.17 billion. Analyst consensus compiled by the Evaluate Group suggests worldwide sales of the biologic will remain at or slightly above present levels for years to come.

Terminology primer
The term biologic gets thrown around a lot because it refers to a lot of different things. In a nutshell, it is an isolated form of something that is created by biological processes and composed of sugars, proteins, nucleic acids, or a combination of the three. Red blood cells, insulin, vaccines, and monoclonal antibodies (MABs) are all considered biologics.

What further separates biologics from small molecule drugs is that their production requires the complex machinery within living cells. Defining steps involve the insertion of a specific DNA sequence into a cell, the culturing of those cells, and the isolation of the biologic from the culture. 

Just because biologics go off patent doesn't mean companies like Johnson & Johnson (NYSE: JNJ  ) need to invite biosimilar makers to tour its facilities and hand them the cloned cell cultures used to make Remicade. Creating an identical replica of a standard small-molecule drug is relatively simple. Recreating biologics can be far more complicated. Because of this complexity, there is often a slight difference between the original biologic and the replica; this is why they use the term "biosimilar."

What's at stake
In September 2013, the European Medicines Agency (EMA) authorized Celltrion and Hospira's (NYSE: HSP  ) Inflectra for use in the EU. This is the first biosimilar MAB to hit the European market . It has been granted rights for all eight of infliximab's (Remicade) marketed indications. It should hit big, but so far its reception has been tepid.

In the first nine months of 2013, Johnson & Johnson and Merck  (NYSE: MRK  ) recorded revenue of $4.96 billion and $1.65 billion, respectively. AbbVie's (NYSE: ABBV  ) , Humira, is another MAB that goes off patent in about three years. It's the world's No. 1 drug by sales, and AbbVie relies on it for more than half its revenue.

Dwindling risk-reward ratio
When developing new drugs, companies take a shoot-the-moon approach to capital management. Generics are exactly the opposite. Risks are minimal, but so are the margins. The burgeoning biosimilar industry is finding itself very uncomfortably in the middle.

Regulators, especially in the U.S., are proving to be an enormous hurdle for would-be biosimilar manufacturers. Requiring large, pivotal trials for biosimilars tacks on enough expense to make generic drug companies rethink their strategies. Furthermore, exact requirements are still a bit of a mystery. Motley Fool analyst Brenton Flynn discusses the lack of a viable pathway in this video.

Even if a biosimilar does win approval, a return on investment is still far from certain. In the U.S., the Biologics Price Competition and Innovation Act, a law bundled in with the Affordable Care Act, includes "an extensive process for the innovator biologic and biosimilar manufacturer to litigate patent infringement, validity, and enforceability prior to the approval of the biosimilar." Most importantly, the law demands that makers of biosimilars disclose their complete dossiers during development.

This gives the originator a big advantage. Originators typically file dozens or even hundreds of patents related to the methods and materials used in their manufacturing processes. Seeing the methods used by biosimilar makers and then filing infringement suits could keep worthy biologics from even submitting a biologics license application for years.

Should a biosimilar make it past expensive clinical trials and lengthy patent litigation, it still faces the scrutiny of physicians and patients. If clinical trials and legal fees don't leave biosimilars unable to compete on price, physician and patient perceptions might. Just imagine how much of a discount you would require to inject a drug that is not exactly the same as the one you are used to.

So relax
The big blockbuster biologics will certainly experience some price erosion from biosimilar competition. It's likely that the losses won't be nearly as dramatic as small molecule drugs like Zyprexa, however. Government regulation, physician adoption, and nature all seem to be working against what would otherwise be a burgeoning opportunity for biosimilar specialists like Hospira. For those of you that own companies facing expiration of their biologic patents, you can rest easy for now.

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Editor's Note: A previous version of this article had incorrect information regarding patent expirations for Remicade and Enbrel. The Fool regrets the error.

Read/Post Comments (4) | Recommend This Article (7)

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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On January 02, 2014, at 4:39 PM, TMFBlacknGold wrote:

    Good summary overall, although here:

    "On the other hand, Amgen's (NASDAQ: AMGN ) blockbuster biologic, Enbrel, lost U.S. exclusivity in October 2012. For the first nine months of 2013, Amgen's portion of U.S. Enbrel sales actually increased year-on-year from $2.88 billion to $3.17 billion. Analyst consensus compiled by the Evaluate Group suggests worldwide sales of the biologic will remain at or slightly above present levels for years to come."

    Amgen sales increased because it took over U.S. sales from Pfizer, which dropped out of its Enbrel pact and now markets Xeljanz. Enbrel is also protected in the U.S. through 2028 from generic competition. Nonetheless, you're absolutely right that biosimilars face uncertainty and additional hurdles compared to small molecule generics. Good stuff!


  • Report this Comment On January 02, 2014, at 10:01 PM, crenauer wrote:

    Thank you Maxxwell,

    I should also point out that although the EC has already approved Inflectra. Remicade is protected in the EU until 2015.

    Remicade lost exclusivity in Korea in October 2012. The Celltrion biosimilar there has not been as successful as you might expect for a less expensive version.

    My apologies for the confusion.

  • Report this Comment On January 03, 2014, at 11:39 AM, PharmTeam wrote:

    These barriers to entry for biosimilar producers actually give Amgen's biosimilars division a huge advantage. They've got tons of experience and a solid infrastructure for manufacturing antibodies, and are pretty far along with Humira and Herceptin biosimilars.

    *AMGN shareholder

  • Report this Comment On January 04, 2014, at 8:29 AM, MABRush wrote:

    These barriers lead to complacency and make huge opportunity for new players like Mabion. They've got tons of cost effective technology, and are pretty far along with Rituxan and Herceptin biosimilars.

    *Mabion shareholder

    Date 26/09/2013

    Mabion has recruited 120/730 patients in the Phase III trial of its biosimilar to MabThera - executive

    Mabion (WSE:MAB) recruited 120 out of 730 patients in its Phase III trial evaluating its biosimilar of Roche's (VTX:ROG) MabThera (rituximab), said Tadeusz Pietrucha, co-founder and CEO of Poland-based Biotech Consulting. The study is testing MabionCD20 in rheumatoid arthritis (RA), he noted.

    The trial started enrollment in June, Pietrucha said. It is a randomized, double-blind study comparing MabThera to MabionCD20, added Magdalena Matusiak, Mabion's clinical trial coordinator.

    The company also plans to start another Phase III trial with the same design to assess MabionCD20 versus MabThera (marketed in the US as Rituxan) in lymphoma, she said. That trial will have 270 patients, she added.

    The trials' primary objectives will be efficacy and pharmacokinetics and secondary outcomes will include safety and immunogenicity. The RA trial has 73 clinical sites in nine countries, Matusiak said. Poland, Lithuania, Serbia and Bosnia having started recruitment, she noted; Romania, Russia, Croatia, Ukraine and Georgia have yet to start.

    Mabion's intention is to file an EMA application in June or July 2014 for both indications, Matusiak said. It has not yet planned for an FDA submission but "hope to as soon as possible in 2014," she added.

    Mabion's pipeline includes: MabionHER2, a biosimilar to Roche's (VTX:ROG) Herceptin (trastuzumab) for breast and gastric cancers; MabionVEGF, a biosimilar to Roche's Avastin (bevacizumab) for colorectal, lung and renal cancers; and MabionEGFR, a biosimilar to Bristol-Myers Squibb (NYSE:BMY)/Eli Lilly's (NYSE:LLY) Erbitux (cetuximab) for head, neck and colorectal cancers.

    There is also an anti-TNF alpha B monoclonal antibody in development as part of a collaborative agreement, Matusiak said, as well as a biosimilar to Roche's Lucentis (ranibizumab) for several eye conditions.

    by Jennifer C. Smith-Parker in Warsaw, Poland


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Cory Renauer

Cory is a long-term minded analyst mainly focused on the biotechnology and pharmaceuticals. He genuinely enjoys cutting through the industry's complexities to help everyday investors make better decisions. You can contact Cory on Twitter @coryrenauer

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