Opportunities in the Biosimilars Market

Analysis of the opportunities and challenges in the biosimilars market.
Mar 02, 2010
Volume 34, Issue 3

Biosimilars, as commonly phrased in Europe, or follow-on biologics, as used in the United States, represent a niche, but a potentially important, segment of the pharmaceutical industry. Their potential, however, depends on a myriad of issues, including market, regulatory, and technical considerations that are unique compared with chemically synthesized small-molecule generic drugs. The establishment of a regulatory pathway for biosimilars in the United States, drug-reimbursement practices for biosimilars, and the cost and time of clinical and process development of a biosimilar are some crucial considerations in assessing the financial viability of such products.

A macro view

The US now lacks a regulatory pathway for biosimilars. However, as that issue is resolved, the market opportunities are significant because healthcare expenditures, including prescription-drug sales, are expected to increase, and biologic-based drugs are expected to assume a greater role in those expenditures. US healthcare spending is projected to account for roughly 15% of US gross domestic product by 2015, and prescription pharmaceuticals in 2015 are projected to account for approximately $446 billion or more than 10% of total healthcare expenditures, according to data from the Center for Medicare and Medicaid Services, as presented by Patricia Seymour, senior consultant with BioProcess Technology Consultants. Seymour spoke in December 2009 at the Biosimilars Manufacturing and Sourcing Dynamics conference, which was organized by the Drug, Chemical, and Associated Technologies Association (DCAT). Biologic drugs account for approximately 14% of current pharmaceutical spending, and more than 33% of all drugs in development are biologics, she noted. By 2015, the market for biosimilars is projected to reach $20 billion.

Risks and rewards of biosimilars

Despite the market potential, the risks and rewards for competing in the biosimilars market are different compared with participation in the market for chemically synthesized small-molecule generic drugs. Seymour offered some statistics to illustrate those differences. There are key differences in the cost and time to develop a biosimilar product compared with a traditional generic drug. The average time to develop a traditional generic drug is short, approximately three to four years. Some industry estimates say that the development time for a biosimilar product would be longer, approximately 8 to 10 years. Given greater complexity in clinical and process development of biosimilars, the cost of developing a biosimilar product is estimated between $100 million and $200 million compared with less than $5 million for traditional generic drugs, pointed out Seymour. Although the clinical and process development time may be greater for a biosimilar than for a traditional generic drug, in assessing the development of a biosimilar, the key comparision is between the biosimilar and the innovator biologic, pointed out Gillian R. Woollett, chief scientist at the law firm Engel & Novittt LLP in Washington DC. Woollett also spoke at the DCAT biosimilar conference in December. "Is the delta for a generic drug to its innovator reference necessarily that much less than a biosimilar to its biologic reference," said Woollett.

Given the higher cost structure and greater technical and capital barriers to entry in the biosimilars market, the potential reward is higher. Traditional generic drugs are more commoditized with little or no product differentiation, but biosimilars would be a more valued-added product with some differentiation. The operating profit margin of traditional generic drugs is roughly 20%, but depending on the biosimilar product, profit margins have the potential to be somewhat higher, as much as 30%, said Seymour.

In assessing the market potential of biosimilars, however, there are certain unknowns, particularly reimbursement strategies. "The payor role in the utilization of biosimilars is not yet clear," said Woollett. A crucial consideration will be whether a biosimilar would be deemed to be interchangeable with the reference product. "An FDA designation of interchangeability can give options for automatic substitution with the reference product, similar to the current generic-drug model," said Woollett. "However, the absence of an interchangeability designation may give greater or fewer choices for payors, and this will depend on the reimbursement infrastructure," she said. Options could include copayment incentives for patients under a tiering approach, prior authorization requirements for physicians, and step therapy and/or switching. She added that the role of government payors, and their related purchasing power, will also be very influential in determining the market viability of biosimilars.

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