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Anjan Selz is CEO at Finox AG
A Strengths, Weaknesses, Opportunities and Threats analysis of the biosimilars market is given.
Biosimilars present an attractive opportunity for small biotech companies seeking to capitalise on the success of originator biotechnology products with proven safety and efficacy. The biosimilar model, however, will not provide sustained market success unless biosimilars manufacturers take certain additional risks to differentiate their products in more ways than on price alone.
A Strengths (S), Weaknesses (W), Opportunities (O) and Threats (T) analysis of the biosimilars market follows.
Lower cost structure
Price may be the key differentiator between a biosimilar and the originator drug, so biosimilars manufacturers' cost structures need to be submitted to this argument from early development through to marketing. The resulting difference depends on the research and development starting points of each product. The originator industry is a researchdriven environment; there is no certain return on each dollar invested because the research target may prove unfeasible. The biosimilars industry on the other hand is a development-driven environment, where a dollar is invested in an overall development target that has already proven its feasibility.
Development is a more calculable venture than research on new drug leads
Having a reference product with many years of development, production and market experience as the foundation for the development of a biosimilar leads to much more calculable risks and rewards compared with venturing into research on new drug leads. In a time where shortterm financial goals are important, the calculability of a venture is of mounting importance. Because the calculability of a biosimilar's risks and rewards may be higher compared with research of new drug leads, the biosimilars industry should be an ever more attractive choice to the investor. We expect the industry to have access to adequate capitalisation.
Biosimilars are a reality
Since the launch of the first biosimilars in Europe in 2006, industry's view of this emerging new class of drugs has changed. Whereas initially the talk was about whether the similarity idea might lead to the establishment of a new class of drugs, today the talk is much more about when and how such biosimilars will threaten revenues of originator drugs. The industry is still in the process of establishing itself; even in the most advanced regulatory environment of Europe, there are still only a handful of biosimilars on the market. The high number of originator biotech drugs coming off patent in the near future will, however, pull a continuous string of biosimilars onto the market.
Favourable pricing and reimbursement policies
In highly regulated and therefore expensive (but also financially attractive) markets, healthcare payers exert continuously mounting pressure on the life sciences industry to produce therapies at a lower cost to the patient. As biosimilars are biotechnology-derived drugs and therefore much more costly to develop and produce than small molecule chemically-synthetic generics, a price difference in the smaller twodigit percentage range will still amount to substantial cost saving per therapy compared with the originator. In less regulated markets, where the consumer base will have even less purchasing power, the pricing argument in favour of biosimilars may be even more attractive.
Driving further innovation
A biosimilar needs to be equivalent to the originator mainly in its efficacy and safety profile in order to obtain authority approval; such equivalence needs to be clearly demonstrated. However, it may prove difficult to sell an all-too-similar product to the prescriber. In order to present a convincing case, the biosimilar needs to be positively differentiated from its originator. The first positive differentiator will certainly be pricing, but once a second biosimilar enters the market, competition on price alone will erode margins for all supply side participants, eventually to a non-sustainable end. Therefore, it is in the interest of the biosimilars industry to positively differentiate their products in additional ways. This might play out as a powerful innovation driver because companies will look for innovative differentiations, such as optimised formulations, delivery modes, packaging variants, size and service aspects of their product offering.
Continued growth of immature, non-saturated markets
Pricing and reimbursement policies present an important growth opportunity for the biosimilars market, especially for mature and saturated markets. However, it may also be interesting for the biosimilars industry to look to the less regulated, developing and non-saturated pharma markets of emerging economies. The game there will be different. Whereas highly regulated mature markets of western economies are "squeezed", the markets in emerging economies are growing. Their emerging middle classes earn good salaries giving them sound purchasing power and they want to spend their money on state of the art goods and services, including medical services and supplies. These emerging middle classes as a new and growing consumer base will soon outnumber the consumer base of western economies.
Lack of credibility in the prescribing community
In Europe the first biosimilars gained approval only four years ago, in 2006 and regulations for biosimilars in the US are still undetermined. Overall, for western highregulated markets, clinical experience per biosimilar is limited to a couple of years at best. This very limited experience is a contrast to the longterm experience of the respective originator drugs.
The prescription decision and, in the absence of automatic substitution mechanisms, also the purchasing decision, is most likely to be taken by the treating medical doctor. Because the biosimilar cannot positively differentiate itself on efficacy or safety, the argument of an advantageous price - on which the prescriber does not earn a penny — will not compensate the disadvantageous lack of clinical experience of the biosimilar. Thus, the healthcare community applies a healthy scepticism to biosimilars.
I do believe this scepticism can, be overcome. At Finox we are convinced that credibility in the prescribing community will not be gained by what we say, but by our actions in the provision of a sound product for the market. Regulations for drug development often offer room for interpretation — in short, you can go the easy (eventually more risky) way or you can challenge yourself by taking the rough ride. We believe that the tougher we set the specifications we want to achieve with our biosimilars, the more credibility we build for our products and the more potential we have of selling them. If a company goes the extra mile while developing a biosimilar, we are convinced that the extra time and money spent will save on marketing expenses postapproval.
It is advisable to catch the interest of the prescribing community early on and to sustain this interest by asking them to share their view of a perfect product offering. These views should then be built into the target product profile. Although there is only limited room for differentiation of a biosimilar, this limited space should be occupied by developing a product offering that is more focussed on the prescriber's and the patient's needs compared with the originator. After having spent a lot of money on the development and approval of the biosimilar, overcoming the credibility hurdle when entering the market amounts to another substantial investment. For a small company, this might be too difficult to bear. I expect to see various types of partnering activities between small development-oriented companies and larger pharma firms; the latter being responsible for market access for the product and providing credibility through its established product lines and brands.
Lack of credibility in the policy forming community
The European Medicines Agency (EMA) requires extensive non-clinical and clinical comparability data between the biosimilar and the originator as well as interchangeability and immunogenicity assessments after repeated use. However, automatic substitution at the dispenser's desk is still not a market reality. So long as the clinical experience with biosimilars is as limited as it is today, the implementation of automatic substitution by the policy forming community will not take place. The absence of automatic substitution has two effects for the biosimilar market: first, it is a selffulfilling argument as it allows the originator industry to keep alive their myth of non-similarity of biosimilars; second, it creates another hurdle for the market penetration of biosimilars.
Lack of credibility as an industry
The biosimilars industry is an emerging industry that has not yet proven its long-term viability. Therefore, the supply side of the biosimilars market still has a long way to go to convince the demand side and the regulator that it is a valuable partner. This lack of industry credibility also dilutes the strength of the biosimilars industry in its interactions with these market stakeholders. The more regulated a market and its industry, the more important lobbying by the stakeholders becomes in order to influence policy setting in their favour. The biosimilars industry has an inherent interest in building up more credibility because this will allow it to further influence policy outcomes aligned with its interests.
Evolving regulatory environment against the industry's interests
This threat corresponds to the lack of credibility in the policy forming community, as well as the lack of credibility as an industry.
Regulatory authorities design regulations considering arguments of various stakeholders and based upon various policy goals. As described above, the lack of longterm clinical experience as well as the lack of proven longterm viability as an industry weakens the stand of the biosimilars industry when trying to influence policy setting process in its favour. A small company may not have the influence to impact the policy setting process, but indirectly; for example through industry associations. Small companies should participate in this process.
Also, small companies can and must navigate the evolving regulatory environment. A continuous dialogue with the authorities initiated very early in the development of a biosimilar will especially help to correctly define targets and develop the product to the authorities' expectations. There are also very supportive instruments available for small companies, such as the SMEStatus from the EMA, which then opens doors for informal interactions with the authority.
Technology improvements and shifts
A biosimilar is designed to be similar — neither inferior nor superior — to the reference product. Once technology improves to yield better products (e.g., biobetters) or the industry adopts a new gold standard therapy for a particular condition, it will be difficult for the biosimilar that is based on a previous technology generation to compete. The pricing argument of a biosimilar and eventually its other differentiation arguments will only marginally close the gap, but the gap itself will remain.
In the presence of such a situation, there is an obvious need to consider methods of diversifying risk. Regarding the threatened product it may well be worth considering marketing the drug into lower margin markets because these may not yet be ready to finance the latest technology change.
Intellectual property domain
The originator industry with its long-standing experience in protecting its innovations tries to keep biosimilar competition out of the market through comprehensive intellectual property strategies. Eventually the core of a drug — its molecule — may come off patent, but this does not mean that biosimilar manufacturers are then free to compete. Originators build defensive IP walls around every aspect of the molecule. The first wall after molecule protection relates to up- and down-stream processing. The next wall surrounds the formulation, and then come protection attempts around essential analytical methods. The latest wall, only applicable in certain jurisdictions, would be around the designated use of a drug. For smaller, less financially stable companies, the prospect of a long, risky and costly patent litigation battle may prove too heavy a burden to carry.
Before initiating the development of a biosimilar, a small company should well invest in freedomtooperate (FTO) analysis. Attorneys may be expensive, but patent attorneys are definitely worth their rate and may save the small biosimilar manufacturer a fortune. Special attention should be paid to the diverse levels of protection that the originator is building around a molecule. Such FTO analysis also needs a very concise plan throughout the development and supply chain as a requisite to help the attorney assess the IP related risks throughout the processing stages of a product.
• Timing matters: Market awareness will be highest for the first biosimilar to compete with a given originator. In our view, it does not make sense to develop the 13th EPOsimilar as nobody in the market will be interested in such a product.
• Dare to be different: As previously discussed, a biosimilar has to overcome the healthy scepticism of the prescribing community and as a biosimilar will not offer efficacy advantages (and eventually safety too), attractive pricing alone will not always convince the market. Try to find targets where you can positively differentiate your biosimilar; for example, with an optimised formulation, delivery modes, packaging variants, sizes and service aspects of the product offering.
• Keep it simple: Try to find targets for which you can access the knowledge around the product, its development and production processes, and then try to stay as close as possible to this foundation as this has proven its viability through the originator for many years.
• Don't play on IP: There are not many defence strategies available to the originator firm, so you may expect it to fully exercise its options. Eventually the battle for market share in many cases will not be fought at the prescriber's desk, but long before at the patent attorney's desk. As such, you must find a way around IP issues or you may be taking part in a game too heavy to play for a small company.
• Prepare deep pockets for financing the unexpected: Eventually at the beginning of your development you draw a plan that nicely sums up to an interesting investment. Don't sell this to your board as the final bill. You have a high chance to run into additional costs while in development. These may result from a changing regulatory or IP environment, evolving market expectations or simply out of the fact that it is difficult to do everything right the first time.
Anjan Selz is CEO at Finox AG