An article recently published on Life Science Leader identified and described six company archetypes that currently make up the biosimilar market: opportunists, bio powerhouses, biosimilar machines, generic giants, bio wizzes, and genericists. We liked this concept so much that we reached out to biosimilar experts from several prominent management consulting firms to ask for their perspectives on these archetypes, emerging biosimilar development and business strategies (as well as mistakes to avoid), and the market’s future. In part 1 of this series, we heard from Mark W. Ginestro, principal in KPMG's Healthcare and Life Sciences strategy team. In part 2, a trio of experts from McKinsey & Company shared their insights. In this final installment, managing directors Jonathan Kfoury and Ricardo Brau of L.E.K. Consulting add their thoughts to the discussion.
Based on your understandings of current market players, which of the biosimilar archetypes do you expect to be most successful in the market, and why?
Jonathan Kfoury and Ricardo Brau: It is hard to anticipate which specific archetype will be most successful, but companies with strong and relevant biologics manufacturing, developing, and commercialization capabilities will likely be best positioned to achieve and sustain leadership in the biosimilars market. We have seen companies belonging to different archetypes (e.g., Celltrion, Pfizer/Hospira, Sandoz/Novartis, and Amgen) become leaders in the early days of biosimilars. In the long term, we expect companies that are committed to biosimilars to win out. As the competitive pressures mount, continued investment to drive scale, sophistication, and brand trust/equity could allow biosimilar machines and bio-powerhouses to differentiate with healthcare practitioners, patients, and payers while maintaining reasonable margins.
Do you see other archetypes emerging into the market today (or in the future)?
Kfoury and Brau: Generally not beyond the six archetypes noted, although the early years of market formation (particularly in the U.S.) will go a long way towards informing what the mix of viable/successful archetypes will be over the mid to longer term. Different types of players will attempt to establish durable market positioning with their respective strengths (e.g., existing relationships with physicians, pricing, brand loyalty/trust, channel strength, etc.).
In fact, it is possible that the number of biosimilar archetypes contracts over time. We have seen several biosimilar players struggle with developing costs and timelines relative to expected returns, while companies like Merck KGaA/EMD are divesting their biosimilar capabilities. If the risk-reward ratio does not improve, the number of biosimilar players may shrink over time.
What biosimilar business strategies have you noted as being particularly effective in the U.S. and EU markets?
Kfoury and Brau: To date, biosimilar adoption in the U.S. and EU has been driven by pricing. This is not surprising given the large costs associated with branded biologics like Remicade and others. However, it is clear that hospital, payers, and government bodies are seeking substantial discounts in order to adopt biosimilars, although the discount threshold needed is indication- and geography-dependent and different for each stakeholder. As a high-level example, Remsima (Celltrion/Orion) provided an approximately 69 percent discount relative to Remicade in Norway and was able to quickly capture about an 80 percent share of the market. In contrast, Hospira/Pfizer launched Inflectra at an approximately 15 percent discount relative to Remicade in the U.S., but J&J recently reported a limited impact on the sales of its branded biologic.
What are the biggest mistakes you’re seeing biosimilar companies making today?
Kfoury and Brau: As anticipated, the majority of the focus for existing/emerging players is around the largest, mega-blockbuster molecules (e.g., adalimumab) losing exclusivity in the next few years, but there appears to be much less in development for the next one to two levels down of originator molecules. With the competition expected to be fierce among those largest molecules during coming years, it is becoming harder to see how newer biosimilar entrants pursuing these assets will be able drive strong returns, especially if late to market (when prices have eroded). Competitors should be looking at not just the biggest targets by sales but also where they can leverage core/unique strengths to pursue molecules with less competition (e.g., due to manufacturing/formulation complexity, disease area focus, etc.) where they can drive an early-to-market/leading position and commensurate return profile.
What concerns do these mistakes raise for you in terms of surviving in specific markets?
Kfoury and Brau: A key concern is that with many companies having few tools to drive differentiation and/or competitive position, pricing and net economics will be the main levers and will potentially precipitate a reduction in prices, especially as more biosimilars for a given molecule become available. Particularly in the highest-value biosimilar markets of the U.S. and EU, it’s important for biosimilar manufacturers to preserve net price to drive favorable molecule-level and portfolio economics. If net prices are not maintained at healthy levels, this will put a premium on being first to market, which in turn may lead companies to take risks in preclinical and clinical development to compress time-to-market timelines.
Flash forward 10 years down the road. Companies are going to need to get creative to set their biosimilars apart from the others on the market. Besides price, what specific incentives will companies need to offer to stand out?
Kfoury and Brau: Given the specialty nature of many biosimilars, the commercial support behind them will likely need to reflect biologic brands in order to remain competitive and differentiate between one another. This is likely to be more pronounced during the launch of the first few biosimilars for a given brand — especially while stakeholders become comfortable with biosimilars in general — and includes sales forces, patient assistance programs, and reimbursement support, among others. In addition, offering enhanced or additional formulations (e.g., subcutaneous) and device technologies will be areas where biosimilar manufacturers can differentiate to some extent. However, net economics to payers, patients, and health systems are still expected to carry the day.
Ultimately, achieving interchangeability could be a major differentiator for biosimilar manufacturers. This would drive volumes and reduce the need for commercial activities. Although the FDA has provided guidance on the requirements to achieve interchangeability, these may vary across products. Nevertheless, several manufacturers are conducting studies to demonstrate that patient treatment is not impacted by switching between brands and biosimilars at any point during treatment.