Lead Analyst of the Generics and Biosimilars team, Datamonitor Healthcare
The application of recombinant DNA technology in the 1970s spawned an expansion of the pharmaceutical industry. Biologic products produced using microbial or mammalian cells allowed drug developers to act on targets in the body that could not previously be modulated with chemical, small molecule drug approaches. Sales of biologics excluding vaccines have risen from $37 billion in 2002 to $135 billion in 2012, to account for 22% of the global prescription pharmaceuticals market1. Attracted by the prospect of significant returns, companies have sought to develop copies of key brands as they mature and lose patent protection.
Protectionist measures pushed India into drug manufacturing
Before looking at biologic products, it is informative to first review the methods through which India built up leadership in generic drug markets. Most notably perhaps, the colonial British patent system was replaced in 1972, effectively depriving pharmaceutical products of protection2. This worked as intended, which was to help nurture a domestic industry and bring down the price of patient treatment by allowing companies to legally reverse engineer and copy drugs. While the move may appear revolutionary, Japan and Canada did not for example recognize product patents at the time (until 1976 and 1987, respectively). Multinationals that had dominated the Indian market moved out.
With low barriers to entry in generics, a large number of homegrown companies arose and refined manufacturing expertise. Streamlined by the highly competitive environment, participants were well- positioned for growth overseas; a direction which became more important after the country reverted to a Western style patent system in 2005. India also benefited from economic liberalization in the 1990s and fewer language barriers. Offering low operating costs and capable manufacturing, it became a key outsourcing destination as indicated by Drug Master Files (DMFs) registered with the US FDA (see Figure 1). Approvals granted to Indian companies for finished formulation generics also ramped up around this time. Of the 476 US generic abbreviated new drug applications (ANDA) approvals in 2012, 37% related to filings from Indian companies3.
Position in generics aided a move to early copy biologics
Nations with an established full service generics industry have had a strong platform for a move into copy biologics. The first of such products launched in emerging markets from 1989, well ahead of developed markets due to their looser regulatory control and patent enforcement. Companies with experience in certain active pharmaceutical ingredient (API) classes, industrial enzymes or brewing already understood the microbial fermentation technologies used in the production of first wave products such as human growth hormone (somatropin) or G-CSF (filgrastim). Similarly, the sterile fill and finish of small molecule injectable drugs can be more readily applied to biologic products. A minority of biosimilars players have started out directly in biologics—Korea’s Celltrion for example was initially set up as an vaccines outsourcing facility for US company VaxGen, while others have taken a fast track route in by building upon the experiences of others.
But biosimilars are a different proposition
Copy biologics can be developed at relatively low cost in less tightly regulated emerging markets and more than 300 have been launched so far4. Products classed as formal biosimilars are though a more technically challenging and capital intensive proposition, so experience with copy biologics is only partially advantageous. Developed markets of the US, EU and Japan alone accounted for 81% of all biologic sales in 2012 and represent a key commercial target5. Biosimilars must be shown to be sufficiently ‘similar’ to a reference product in these markets, requiring extensive characterization work and comparative clinical trials. Emerging market companies have historically had only limited experience with novel molecules and the more stringent development processes they require. It is perhaps therefore not surprising that initial EU biosimilar approval attempts from APAC companies have not been materially successful. However, the landscape has evolved and those with second wave products in development including complex antibody-based structures, appear to be in a better standing. Most notably, Celltrion filed a copy of auto-immune disorder brand, Remicade (infliximab) in April 2012 and an approval decision is anticipated from late 2013.
Prescription and distribution processes have further limited the role of emerging market companies in developed market biosimilars. Emerging markets are typically associated with branded generics and factors such as recognition of a company’s name or relationships between medical representatives and physicians are key to obtaining market share — there are more than 90,000 drugs with market authorization in India. Due to concerns of minor differences from reference products, copy biologics (biosimilars) are prescribed by their trade names in the US, EU and Japan. Emerging market companies do not, however, have sufficiently sized sales forces in these countries, where generic drugs are prescribed by their molecule (INN) name and sold via contracts with payers. The net result of these hurdles is that partnerships have become a necessity for generics companies in APAC to expand their presence in biosimilars into developed countries. Although Biocon acquired AxiCorp to build an EU biosimilars sales and marketing platform, it was later divested after the company secured a larger partner and this strategy has not been undertaken by others for major markets.
APAC companies as product sources
The experiences and cash flows arising from small molecule generic and first wave copy biologics, has allowed APAC companies in particular have made it to the forefront in biosimilars. In addition to Celltrion’s EU filing for biosimilar infliximab (partnered with global generics player Hospira), APAC has been responsible for other landmarks such as Korea’s ISU Abxis launching the first antibody fragment copy (abciximab) and Dr. Reddy’s in India with the first full monoclonal antibody copy (rituximab). The increasing role of APAC is though best indicated by product deals that major innovator and generics companies have struck for products and development candidates (see Figure 2). The most notable partnerships include those of Merck & Co. with Samsung, Merck KGaA with Dr. Reddy’s, Teva with Lonza, Watson with Amgen, Mylan and Biocon and Hospira with Celltrion, which involve Indian or Korean source companies in all but one case.
A key strategic question for APAC companies, is to what extent they should take part in any geographic expansion plans. Profits from biosimilars will ultimately go to those with the strongest commercial positions and it can be advantageous to partner with a local distributor that already has good coverage of an emerging market for example. Alternatively, setting up an in-house sales and marketing operation may be more suitable where a company has a broader portfolio to channel through it, or if products fall within a narrower range such as to oncologists only.
Taking a product to developed markets alone is though beyond the capabilities of most emerging APAC companies. From a financial perspective the cost of developing a biosimilar for the US, EU or Japan requires significantly higher levels of investment (approximately $100-200 million for a product) than for emerging markets ($10-20 million). Firm strategic decisions should be made since the additional preclinical and manufacturing refinement required for a major market would negatively impact the economics of a product if it were ultimately only to be developed for emerging market countries. Similarly, if the aim is to attract a partner for developed markets, characterization work and manufacturing processes should be sufficiently robust. A range of options exists in terms of product type, bulk substance manufacturing, developed market partnering, emerging market commercialization and other aspects, each of which offer differing complexity and risk-reward profiles (see Figure 3).
Global leaders in biosimilars such as Sandoz and Teva will be very tough opposition. Moreover, large innovator pharmaceutical companies including Pfizer, Sanofi and Amgen, also have ambitions of capturing a share of global biosimilars markets. This is distinctly different from the landscape facing generics companies initially, where growth was largely uninhibited by innovators wanting to take part. The view at Datamonitor is that in this very competitive space, APAC companies should initially seek to carve out a strong niche role. This could include being a leader in a particular local market, positioning as a lower cost manufacturer or going after a less aggressively targeted molecule. For example, Oncobiologics is to use partner Viropro to manufacture biosimilars for emerging markets in Malaysia, rather than at its existing US facility.
Whichever strategies are adopted, it is important to consider long-term risks. In terms of manufacturing, innovator companies including Amgen and Genzyme are advancing new, more efficient biologics manufacturing methods which could potentially slow or halt the loss of market share to copy products6. Separately, a number of companies are looking instead to biobetter products, in the hope that greater investment and longer development times will later provide a stronger market offering than biosimilars. Cost-effective approaches are particularly important as healthcare spending becomes more austere. Although unlikely at present, calls to allow automatic substitution, where an available biosimilar is prescribed in place of its reference product, have grown louder. Investment in traditional sales and marketing for biosimilars could prove ineffective if prescription choices moved away from physicians and patients. Lastly, in a number of emerging markets, government and industry stakeholders are seeking to reduce reliance on imported or externally supplied biologics. This in some way mirrors the drivers that resulted in India building up generics expertise. Countries that have historically had little direct involvement in pharmaceutical manufacturing, can rapidly build capabilities, displacing income from more established players. The APAC region is particularly well positioned to compete in biosimilars, but the rewards will be harder to come by than was the case for small molecule generics.
About the Author
Giles is Lead Analyst of the Generics and Biosimilars team at Datamonitor Healthcare, having previous roles in the Financial Markets team producing in-depth pieces for the investment community, as well as the Established Companies and Central Nervous System teams. He joined Datamonitor in 2005 from industry roles at GlaxoSmithKline and Aventis after gaining degrees in Biochemistry & Biotechnology and Biochemical Engineering. Giles wrote a chapter for the recently published book ‘Fusion Protein Technologies for Biopharmaceutical'.
- Datamonitor Healthcare company reported sales analysis
- Indian Patents Act, 1970, http://www.wipo.int/wipolex/en/details.jsp?id=2393
- Datamonitor analysis of FDA data
- Datamonitor research
- Datamonitor, based on company sales data
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