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If you're one of the world's largest biotechnology companies, what do you do when others try eating your lunch?
Amgen (NASDAQ: AMGN) isn't about to take it lying down. In the face of competition for its blockbuster biologics that have lost patent protection, the California juggernaut is striking back in a big way.
Unlike easily replicable small molecule drugs, Amgen's leading products are complex biologics assembled within living cells. Plugging an identical DNA sequence into two different host cells generally results in proteins that are functionally equivalent, but not completely identical. This is why we use the term biosimilar, rather than "generic" to describe them. It's also the reason the approval process is far more complicated, and expensive.
Bring it on home
Until recently, Amgen's biosimilar threat was limited to the world outside of the US. That all came to an end when Novartis (NYSE: NVS) launched its biosimilar Zarxio in early September. Earlier in the year the FDA deemed any differences between it and Amgen's Neupogen clinically insignificant, and it can be prescribed for all of the reference compound's approved indications.
Of course the approval comes with an important caveat. The two are not considered interchangeable. This means a prescription for Neupogen can not be filled with Zarxio, and vice versa. It also means Novartis has some educating to do.
Following some legal issues the Swiss pharma giant didn't begin US sales until earlier this month, at a 15% discount to Neupogen. Global markets as a whole react differently than the US, but rest-of-world performance can give us some indication of what to expect (Neulasta, a longer lasting version of Neupogen that has yet to face direct biosimilar competition, complicates things a bit, but bear with me).
It's likely that some patients opt for the less convenient Zarxio, or Zarzio as it's known in the Eurozone, over Neulasta to take advantage of some savings. The Neupogen/Neulasta family has been losing some ground to biosimilars for a few years now, but the effects haven't been nearly as severe as revenue losses typically experienced when small molecule drugs begin facing generic competition. Combined ex-US sales of Neupogen and Neulasta have fallen from $1.25 billion in 2011 to an annual run rate of $1.1 billion so far this year.
For a company expecting more than $21 billion in total revenue this year, losses to biosimilar competition thus far may seem inconsequential. It's important to point out here that domestic sales accounted for 78% of revenue in the first half of this year. For Neupogen and Neulasta that figure is over 80%. Despite losing patent protection years ago, biosimilar pricing pressure is just beginning for Amgen.
If you can't beat 'em...
Rather than wallow in self pity, Amgen is leveraging its biologic development and manufacturing expertise to become a major player in this rapidly expanding market. Not content with just sticking a toe in the water, its nine biosimilars in development are more like shouting "cannonball" from a tire swing.
Earlier this year, Amgen's ABP 501 met its endpoints in a phase 3 trial with rheumatoid arthritis patients that suggests clinical equivalence with AbbVie's Humira. The anti-inflammatory raked in a whopping $13 billion last year. It's extremely unlikely that Amgen's biosimilar will ever approach such lofty heights, but odds are good it will at least reach blockbuster status, if approved.
More recently, Amgen fired a shot across Roche's bow with results from another phase 3 trial. The results suggest ABP 215 is clinically equivalent to lung cancer therapy Avastin. When Roche reported mid-year results, Avastin had already racked up more than $3.3 billion so far this year. Again given discounting and competition from the reference product, Amgen's biosimilar probably won't hit these numbers. But that's not to say it isn't valuable. If approved, you'll be hard pressed to find an analyst suggesting it won't at least enter blockbuster territory.
A net positive
The Neupogen family isn't the only product about to come under fire. The FDA is mulling over a BLA from Pfizer's newly acquired Hospira subsidiary for an Epogen biosimilar named Retacrit. While competition from this and Zarxio will surely eat into Amgen's profits, selling biosimilars of competitors' products could more than offset the losses.
Difficulties associated with biosimilar development and marketing will no doubt limit the number of players, but competitive pricing pressures will likely prevail. This means that the most profitable biosimilar operations will be the ones that can limit costs. Amgen practically wrote the book on modern biologic manufacturing, and a recently constructed next-generation biomanufacturing facility in Singapore will go a long way toward improving profitability.
Not everyone will do well off biosimilars -- but Amgen's making the right moves to be a winner.
