Attack of the biosimilars
Biotechnology drugs are the next target for cheaper versions
GENERIC drugs are the scourge of the pharmaceutical industry. So it is ironic that the next great opportunity for traditional drugs firms is to do to the biotechnology interlopers exactly what the generics firms have done to them: shred their profit margins with cheaper copies.
This battle is foreshadowed in a deal announced on October 18th by Pfizer, the world’s biggest pharmaceutical firm. It will work with Biocon, India’s largest biotech company, to bring “biosimilar” insulin treatments to market. Biosimilars are generic impersonations (although not identical copies) of biotech drugs. And as if to remind the world that new ideas don’t all come from America, it is the Indian firm that will design and manufacture the original drugs; Pfizer will only market them.
This is part of a new strategy to become a “one-stop shop” for biosimilars, explains David Simmons of Pfizer. Biosimilars are a hot new area. Although biotech-based drugs account for only a fifth or so of global drugs sales they are projected to grow at double-digit rates as sales of many conventional drugs decline, especially with a large number of patent expirations coming. Add the fact that many biotech drugs produce enormous profits—some treatments cost $100,000 or more per year—and it is easy to see why the sector looks like a juicy target for generic assault.
Yet some traditional generics firms are piling in too. Sales of biosimilars at Sandoz, a generics arm of Novartis, a Swiss drugs giant, reached $118m in 2009. Jeff George, Sandoz’s boss, says they leapt 72% during the first half of 2010. William Marth of Israel’s Teva, the world’s biggest generics firm, insists that biosimilars are a “natural segue” for his company and predicts that sales will reach $800m by 2015. Cipla, an Indian generics maker, and China’s Desano Pharma are also getting into the biosimilars business.
Generics firms will do better with biosimilars than they have with conventional generic drugs, insists Viren Mehta, an industry expert. Sandoz’s Mr George says the leading generics firms have access to better technologies now and have made doctors and patients comfortable with using copies of drugs. However, he acknowledges one potential snag: complexity.
The science involved in making biosimilars is much more complicated than that in making ordinary generics, says Andrew Pasternak of Bain & Company, a consultancy. A typical generic drug may cost a few million dollars to develop, he estimates, but a biosimilar version could cost perhaps $100m-150m. And because biosimilars are not exact copies, many countries may not allow them to be automatically substituted for the pricier originals, as generic drugs often are in some countries.
This complexity hands the advantage to the old pharmaceutical giants. Kiran Mazumdar-Shaw, head of Biocon, says the “easy substitution” that generics firms enjoy at the pharmacy does not work with complex biosimilars—which require a doctor’s approval to dispense.
The big drugs companies will benefit from that because they have marketing machines and large technical sales forces to persuade doctors to prescribe a drug. Michael Kamarck of Merck, an American drugs firm which moved into biosimilars in 2008, thinks the barriers to entry are so great that “only a handful” of firms will be able to pull it off.
Yet the outcome may not be so simple. As the Pfizer deal with Biocon suggests, both sides may need partners. That is because there is an obstacle to biosimilars even more formidable than cost: lawsuits. Biosimilars threaten incumbent biotech firms such as Amgen and Genentech (now part of Roche, a Swiss drugs giant), which have billions of dollars of sales at risk, argues Mr Pasternak. Big biotech will fight hard to defend its patch, he predicts.
This article appeared in the Business section of the print edition under the headline "Attack of the biosimilars"
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