What Does Recent Biosimilar Approval By The FDA Mean?

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In early March, Novartis’ Zarxio became the first biosimilar to be approved in the U.S. by the FDA. A couple of weeks later, Amgen in Federal court was denied in its bid for a preliminary injunction to delay the sale of Zarxio in an attempt to extend the exclusivity period for its own drug Neupogen, of which Zarxio is a biosimilar copy. This is a very significant development and could impact several stakeholders going forward. Biosimilars are comparable to generics in that they are approved substitutes for specific bio-engineered therapies, or biologics. However, unlike generics, which are exact chemical copies of the small molecule therapies they replace, biosimilars only include the therapeutically active portion of the very large molecules they are intended to replace. Because they are generated through biological processes in so-called bioreactors containing specialized ecosystems, they are harder to manufacture and require a greater range of  technical expertise as compared to generics of small molecule drugs. Due to both these technical difficulties, and to the absence (until now) of guidelines for the approval of their biosimilar versions, biologic manufacturers have faced little competition in the U.S. However, this could change in the future. While biotech investors may not be happy about it, drug payers and the U.S. healthcare system will save billions over the next decade. Here is how the increased competition in biologics market impacts certain key stakeholders.

See our complete analysis for Bristol-Myers Squibb

 

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Besides the above, it is worth mentioning that Abbvie, Roche and Pfizer will be highly impacted by how the biosimilars market shapes up going forward. There are around 11 biosimilars under development to compete with Abbvie’s Humira, which loses its patent exclusivity in the U.S. in 2016. [1] Needless to say, if few of these come to the market in the next couple of years, the competition can drive down biosimilar prices even more than the current expectation of 30% discount to branded biologics. Roche has a strong $110 billion oncology business (our valuation estimate) primarily built around biologic cancer drugs such as Rituxan/MabThera and Herceptin. Several competitors are currently developing biosimilars for these drugs which poses significant competitive threat to the future growth of these drugs. However, unlike Abbvie and Roche, we expect Pfizer to benefit from the growth in biosimilars market as the company is focusing on developing some of them under its generic drug unit. It also recently acquired Hospira, the maker of generic drugs. In fact, Hospira has received the approval for one of the first biosimilars for Remicade in Europe.

Key sources for the tabular data:

1) http://www.rand.org/content/dam/rand/pubs/perspectives/PE100/PE127/RAND_PE127.pdf

2) http://www.cbo.gov/sites/default/files/cbofiles/ftpdocs/94xx/doc9496/s1695.pdf

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Notes:
  1. Big Pharma’s Unfamiliar Biosimilar Threat, The Wall Street Journal, Mar 22 2015 []