Biosimilars: Making the most of an “inexact” science
There’s no question that biosimilars are a revolution in life sciences. The development of these complex medications made from living cells, blood, and tissue is a brave new world, especially for generic manufacturers who may have less experience with the process than the drug designers in many branded companies.
More than $67 billion in global biologics value is expected to face biosimilar competition by 2020.
As with most uncharted territory, however, generic and branded drugmakers should approach their entry into this new field strategically. There are key questions to answer: Is it a risk worth taking? Is the cost prohibitive? Can we afford to make the kinds of capital investments needed to succeed?
In addition to asking the tough questions, executives have to contend with comparisons to generics in terms of cost and development. Generics have provided consumers remarkable savings over the years, with discounts often approaching 90 percent over their branded counterparts.
Generics are typically cheaper than biosimilars to produce for several reasons: They don’t require new Phase III clinical trials to prove efficacy and interchangeability, the exact active molecule can be obtained, and traditional manufacturing practices can be followed. They can be as easily and profitably manufactured by small regional companies as they can be by big multinational operators. The large number of generics companies leads to lower cost.
The public might think biosimilars will generate the same kind of broad competition as generics, leading to advantageous price discounts. Federal authorities may look at it as an opportunity to save money.
However, the cost savings will likely not be realized to the same extent as generics. There’s a reason they’re called “biosimilars,” and not “bio-exacts.” They are not generic substitutes. Demonstrating that a new biosimilar is efficacious and safe is only one hurdle manufacturers will need to overcome; they will also need to demonstrate interchangeability.
Developing a biosimilar can be complex, riskier, and more expensive than creating traditional small molecule generics. The manufacturing process, since it involves living cells, can be variable in producing a molecule that is similar but not exact. A manufacturer could produce a molecule that may meet the first hurdle, but not show that it is interchangeable with the branded product – leading the FDA to deem it a new product. The cost and risk are already clear to many major manufacturers. Large molecule biosimilar production requires significant investment in plants and manufacturing equipment.
The kind of scale the makers of biosimilars will need to achieve could make it extremely difficult for smaller, less well-capitalized organizations to compete with the major industry players.
Additionally, projected biosimilars cost savings for consumers are more likely to fall in the 25-30 percent range. We won’t be seeing the level of price discounts that have come to define the explosive growth of generic pharmaceuticals over the years. As a result, many smaller companies facing smaller margins, even those that have demonstrated success with generics, may find themselves squeezed out of a demanding and dynamic new market.
Success may depend on an organization’s ability to absorb cost and make the required capital investments in production and facilities, and whether it can buy or build the competencies needed to compete. They’ll need to invest in developing the knowledge required to conduct Phase III trials, something generics manufacturers haven’t had to do.
Biosimilars may provide a particular opportunity for branded pharmaceutical manufacturers with access to sufficient capital and for those mid-sized and large generic manufacturers able to scale up quickly and determine they have the investment capability to compete.
For those who make a strategic decision to enter this new field, tens of billions in revenue could be waiting at the end of the process.
John Phillips is the Financial Advisory Services Lead for the Generics Pharmaceutical Segment and the Life Science Lead for Capital Efficiency Practice, Business Valuation, Deloitte Transactions and Business Analytics LLP