What Is a Biosimilar?

A biosimilar is a manufactured biologic considered similar enough to an existing medicine that regulators can't find a clinically meaningful difference from the reference product. The Food and Drug Administration goes a step further than "biosimilar" with the term "interchangable bilogical product," for biosimilars expected to produce the same medical result as the reference product in any patient.

Understanding the role biosimilars might play in the healthcare sector in the years ahead goes far beyond these cut-and-dried definitions. For starters, it helps to understand that small-molecule drugs are relatively easy to duplicate with 100% accuracy, and generic versions rarely require expensive clinical trials to earn marketing approval. This relative simplicity often leads to sales decreases as steep as 80% within a year of losing patent-protected exclusivity.

Highly complex biologics are a completely different animal. They can only be manufactured inside another living organism, under precise conditions. The number of companies capable of producing biosimilars is far smaller, and their approval requires expensive clinical trials. For this reason, they're generally priced about 20% to 30% lower than the branded reference product. At least that's been the trend outside the U.S., where regulatory pathways to biosimilar approval have been in place much longer.

Before President Obama signed the Affordable Care Act into law in 2010, there wasn't a regulatory pathway for biosimilars. The FDA granted approval to the first U.S. biosimilar, Zarxio from Novartis, on March 6, 2015, just a few weeks ahead of the ACA's fifth anniversery. 

Because of a mandatory six-month waiting period following biosimilar approval, Zarxio, which references Amgen's Neupogen, didn't begin its commercial launch until September 2015 and hasn't announced its sales figures in the U.S. yet. In the EU, the same biosimilar earned marketing approval under the name Zarzio in 2009, and Amgen's annual sales of Neupogen recorded outside the U.S. have slid from a high of $445 million in 2008 to $256 million in 2015.

Based on the gradual erosion of sales we've seen outside the U.S., biosimilar sales are going to be more of a thorn in biologic drugmakers' sides than bullet wounds. However, for companies with the resources to develop and commercialize biosimilars, such as Novartis, they could be an important source of revenue in the years ahead. 

One trend you'll want to keep an eye on is FDA labeling of biosimilars as interchangeable biological products. Physicians must actually prescribe biosimilars by name, but once determined interchangeable, pharmacists, per end-payer instructions, can substitute the less expensive version without doctor or patient consent. However, even this detail is subject to laws that differ from state to state.

Biosimilars are already exerting an effect on the biopharma industry. Going forward, the magnitude of that effect is far from certain. 

This article is part of The Motley Fool's Knowledge Center, which was created based on the collected wisdom of a fantastic community of investors. We'd love to hear your questions, thoughts, and opinions on the Knowledge Center in general or this page in particular. Your input will help us help the world invest, better! Email us at knowledgecenter@fool.com. Thanks -- and Fool on!