By Michael Turner and Magnus Franzen
Based on a detailed review of the biosimilar market, which included discussions with executives at leading biosimilar companies and originator companies whose drugs are reaching loss of exclusivity, it is clear that this market is highly dynamic. While the biosimilar market has not yet fully lived up to the initial expectations, it may be on the brink of considerable and rapid change.
What follows is the first of a four part series of articles on the biosimilar market. This first installment aims to provide an overview of the biosimilar market to date, with some insight on the following three main challenges that have changed the shape of the market: the development of biosimilars is increasingly complex and costly; the regulatory hurdle (especially in the US) has been tougher than expected; and commercializing a biosimilar is difficult and complex.
Experience To Date
When the European Medicines Agency (EMA) presented its ‘Guideline on similar biological medicinal products’ in 2004, it brought clarity to the way forward for biosimilar development. Analysts across the industry topped each other in their estimates of the size of the potential biosimilar market. They anticipated great commercial success, significant impact on biologic medicinal expenditure, and a new and growing competitive landscape.
However, many of these early projections failed to materialize.
Although the biosimilar opportunity undoubtedly remains exciting, experience to date shows that few biosimilars have actually delivered against expectatons. In fact, the market looks vastly different from the forecasts of ten years ago:
- Fewer Biosimilars Have Reached The Market Than Expected
Currently 20 biosimilar products have marketing authorization in the EU. In the US, the Food and Drug Administration (FDA) approved its first biosimilar, Sandoz’ Zarxio (marketed as Zarzio in Europe) in 2015. The initial expectation was that more companies would be developing biosimilars and bringing them to market. However, some key players have had to scale back their programs (e.g. Boehringer Ingelheim), some have withdrawn completely from the biosimilar market (e.g. Lonza) and some have even had to file for bankruptcy (e.g. Epirus Biopharmaceuticals).
- The Price Erosion From Biosimilar Introductions Has Been Smaller And Slower Than Expected
It was estimated that biosimilars would bring great cost savings to healthcare systems. However, companies have been cautious in their biosimilar pricing strategies, and the initial price erosion has not been as substantial as predicted. In addition, the rapid growth in competition has not been seen, removing some of the downward pressure on prices.
- Biosimilar Companies Have Not Achieved Their Expected Commercial Success
Even though biosimilars have been able to penetrate well in some markets (e.g. Romania), overall commercial success has not yet materialized for most players. The investment needed for biosimilar development, alongside the emergence of more complex commercial models, are still eroding short-term profit margins.
The Biosimilar Challenge
Three primary challenges have changed the shape of the market:
- The Development Of Biosimilars Is Complex And Costly
While the early biosimilars were relatively simple in their construction and required an investment of $50-100 million, the new generation of biosimilars in the pipeline are targeting much more complex monoclonal antibodies. The cost of development of these more complex molecules has been estimated to be closer to $250 million, with industry insiders citing investment costs of up to $300-350 million.
An important factor driving that development cost – in addition to the complexity of the molecule - is the speed at which companies need to go through the development process. The commercial reality of biosimilars in the marketplace is that the success of a launch is heavily dependent on being able to seize the window of opportunity after the originator biologic loses exclusivity and before competitor biosimilars reach the market. In other words, the first-mover advantage for biosimilars is very important to establish market share.
- The Regulatory Hurdle (Especially In The US) Has Been Tougher Than Expected
Another factor driving the high development cost is the regulatory hurdle that still persists even though many of the core markets now have dedicated biosimilar pathways. The expectation was that the regulatory pathway would bring clarity to the process and provide an easier route to market for biosimilar companies. However, the FDA has issued Complete Response Letters (requests for additional information when a non-approval decision is made for the pending application) for several submissions, as well as other requests for additional information or data. These additional information requests add considerable risk to the biosimilar program as they could result in developers both missing the launch window and incurring increased costs from setting up additional trials to generate the necessary evidence.
- Commercializing A Biosimilar Is A Complex Sale (And More Difficult Than A Generic)
The commercialization of biosimilars is also proving complex and requiring much more attention than expected. As a result, the commercial model to market biosimilars is still evolving in many markets, and companies are experimenting with different approaches. The expectation that the ‘biosimilar sale’ would be the same or similar to that of selling generics has not been supported by experience across the world. Instead, the biosimilar commercial approach seems to be more closely aligned to that of originator biologics; something that puts pressure on the biosimilar business model. A large commercial engine to drive both share of market and share of voice is hard to sustain for a biosimilar as the business case often relies on assumptions of lower costs.
Biosimilars have not achieved early expectations, and the challenges they face are deeply interconnected. The commercial environment drives a need to hit short launch windows, which in turn pushes up development costs. At the same time, regulatory hurdles that increase the need for additional evidence further increase development cost and risk. This pushes down possible discount rates and means biosimilars come to market with a higher price than originally anticipated. With less leverage available due to price, the biosimilar needs a more qualitative sales model, further driving up the cost of entry and commercialization.
This will not be resolved by simply throwing more resources at the problem. The complexity of bringing a biosimilar to market with the right amount of solid evidence and at the necessary speed to be one of the first in the market should not be underestimated. It needs an impressive amount of biologic development capability and know-how.
What we have seen to date are companies either racing to acquire new capabilities or leveraging existing capabilities to adapt them to the biosimilar market. However, not all companies have been successful in these efforts, and some companies have failed or drastically scaled back their biosimilar programs.
Michael Turner is a life sciences expert at PA Consulting Group, with over 17 years of commercial strategy experience. Michael partners with clients to address strategic product and portfolio challenges and implement strategies to maximize asset value.
Magnus Franzen is a life sciences expert at PA Consulting Group. With a background in strategic and market research, Magnus leverages a deep knowledge of the dynamics of commercializing pharmaceuticals in a changing healthcare environment to support clients in key strategic areas, such as customer engagement, multichannel marketing and value beyond the pill.