The lesson from first-generation biosimilars like growth hormone is that these aren't just small-molecule style copies. They require significant clinical and commercial support to overcome prescriber skepticism.
Those lining up to tap into the next-generation opportunity as patents expire on complex drugs such as Enbrel and Rituxan include innovators such as Merck and Pfizer, who aim to leverage their expertise in the branded segment.
For them, biosimilars represent a new kind of innovation, where the novelty lies in a drug's value-focused pricing, quality, cost-effective production, and in peripherals such as support-services and means of delivery.
Although biosimilar market dynamics will vary from molecule to molecule, this emphasis on price and value rather than scientific breakthrough exemplifies a new definition of innovation in the biopharma sector.

"This isn't trivial. It's not copycat stuff," says Mike Kamarck, president of Merck & Co. Inc.'s three-year-old Merck BioVentures unit, about developing biosimilar drugs. It's clear to everyone in, or entering, the biosimilars game that creating biologic copies is more expensive and far more complicated than what’s required to make chemical generics. It also involves a whole new set of regulatory requirements – very fresh indeed in the US – which push up biosimilars' development costs and affect their market positioning.

That's in essence why branded Big Pharma like Merck and Pfizer Inc. have entered the game, believing they can compete through bringing innovation – albeit not of the traditional, drug-target-focused variety – to a sector whose theoretical promise so far remains unmatched by commercial reality. These Big Pharma have joined the likes of biosimilar pioneer Sandoz, the generics division of Novartis AG, generics giant Teva Pharmaceutical Industries Ltd. and injectables-focused Hospira Inc., who have learned important lessons from the first-generation round of biosimilars – copies of smaller (and in some cases simpler) molecules such as EPO, G-CSF and insulin.

By default, the pioneers' experience has been almost exclusively European, since the European Medicines Agency (EMA) was first among developed markets to introduce regulatory guidelines for biosimilars, in 2005. And since EU legislators and regulators are silent on whether originator products can automatically be substituted by an approved biosimilar, the uptake of these copycat drugs has been largely determined by doctors' appetite for them.

Physician skepticism – encouraged by innovators' lobbying efforts – prevented the earliest biosimilars from creating the splash that many believed they would, despite the theoretical attraction of cheaper drugs in an increasingly cost-conscious environment. But companies like Merck and Pfizer nevertheless believe in the opportunity, particularly as the next, more complex and probably more lucrative generation of large molecules loses patent protection – including copies of expensive, complex treatments such as fusion protein Enbrel (etanercept), as well as monoclonal antibodies such as Rituxan (rituximab) or Herceptin (trastuzumab). (See Exhibit 1.)

Exhibit 1

Patent Expiries

Brand Name (generic)	Estimated expiry/first year of generic launch* (EU;US)	Annual Sales	Key Indications
Enbrel (etanercept)	2015; 2012	$6.3bn	RA, psoriatic arthritis, plaque psoriasis
Rituxan (rituximab)	2013; 2015	$5.6bn	CLL, NHL, RA
Herceptin (trastuzumab)	2014; 2019	$4.9bn	Breast cancer
Remicade (infliximab)	2015; 2015	$5.9bn	Crohn's, RA, UC, psoriasis
Humira (adalimumab)	2018; 2016	$5.6bn	RA, Crohn's, UC, plaque psoriasis, psoriatic arthritis
Avastin (bevacizumab)	2019; 2017	$7.3bn	Breast cancer
Synagis (palivizumab)	2015; 2015	$1bn	RSV

*precise expiry dates are challenging to pin down and estimates vary, therefore, given that each biologic is often covered by multiple patents

Decision Resources; JP Morgan; Nature Reviews

Big Pharma entrants aren't just banking on increasing cost pressures and doctors' growing familiarity and experience with biosimilars to create successful franchises. They plan to bring branded-style clinical, promotional and service-related support to a set of products that Kamarck describes as an entirely new proposition: 'value' products aimed at improving access, but "with the same efficacy and safety as is associated with the Merck brand." Hence the goal is to brand biosimilars, differentiating them not just from the pricier original but from other competing biogenerics too.

The chimeric feature of biosimilars – half innovative, half generic – means pricing won't go generic-low either. Marketing requirements, at least in the short-to-mid term as doctors get accustomed to drugs with smaller-than-usual clinical support packages, will be significant. Making the economics work will require dogged focus on achieving manufacturing efficiencies and clever trial design, just as product differentiation may demand innovative formulations or delivery.

Much of the sector's potential value is still to play for. By 2016, 40% of global biologics sales, worth about $63 billion, will be off-patent, but the US only in March 2010 enacted legislation allowing a regulatory pathway for biosimilars – the Biologics Price Competition and Innovation Act (BPCIA). FDA hasn't yet issued its biosimilars guidance, although three documents are expected before the end of 2011.

Still, the emerging characteristics of biosimilars – innovation not necessarily in design, but in production, delivery, cost, and on-market support services – are increasingly what payors are demanding from the rest of the industry, too. That's why biosimilars is arguably a useful sport to be practicing; indeed, several drugmakers are quietly doing so without explicitly declaring lofty ambitions in the space. Eli Lilly & Co. has a biosimilar version of Sanofi's basal insulin Lantus approaching Phase III; Inspiration Biopharmaceuticals Inc. just filed a biosimilar Factor IX in Europe for hemophilia B. Also see "Ipsen/Inspiration’s Coagulation Factor IX Accepted For Review By EMA" - Pink Sheet, 4 October, 2011. Even Amgen Inc., initially among the most vocal opponents of biosimilars, now believes that they indeed "have a role to play," and is itself "investigating new ways to serve patients in this rapidly evolving field," according to SVP R&D Joe Miletich.

Uptake Hurdles Receding As Payors Push On Cost

Five years after the first biosimilar, Sandoz's Omnitrope (a copy of Pfizer's Genotropin (somatropin)), was approved in Europe, the global biosimilars market was worth less than $400 million in 2010, according to IMS – a tiny fraction of the sales of products that have already lost exclusivity. Also see "Biosimilars: Nearly The End Already, Or Is The Best Yet To Come?" - Pink Sheet, 20 April, 2011.

This disappointing performance came in part because no European country currently allows automatic substitution of a branded biological with a biosimilar (despite the fact that several EU-approved biosimilars share the same international non-proprietary name (INN) as their reference product). That means biosimilar uptake is dependent on doctors' actively choosing to prescribe them, which in turn spells headwind, given the relatively limited trial data supporting biosimilars' use.

The story of Sandoz and Momenta Pharmaceuticals Inc.'s enoxaparin, a copy of Sanofi's low-molecular-weight heparin Lovenox, illustrates the impact that officially designated interchangeability has on uptake: enoxaparin was approved in the U.S. in July 2010 via the regular small-molecule ANDA or 505 (j) pathway, and had sold $426 million by the end of that year. Sure, as a sugar-based, rather than protein-based, drug, it's not strictly a biosimilar (and its sales aren't counted in the IMS estimate above), but it's certainly complex.

There are signs that the regulatory and emotional hurdles that dulled most biosimilars' first airings may be receding, however. This is partly because payors – especially those in Europe – are increasingly willing to accept products that satisfy a basic level of efficacy in order to save money. And it's in part because there have been no reported major safety concerns arising from biosimilar usage in Europe to date. (Omnitrope's approval was followed in 2007 by that of Sandoz's Binacrit (a copy of Amgen's Eprex (epoietin alfa)) and by Teva's Tevagrastim (a copy of Amgen's Neupogen (filgrastim)) in 2008, with half a dozen or more other products approved since.)

Meantime, there are other ways to achieve the same effect as automatic substitution. Europe's national authorities – and/or its increasingly influential payors – can effectively override, or at least limit, doctors' choice of prescription in order to drive biosimilar uptake.

Granted, some of the strongest such attempts have met with resistance: Norway added biosimilar filgrastim – priced at less than a third of the original, Neupogen – to the automatic substitution list in mid-2010, but Amgen sued, successfully. According to Steinar Madsen, medical director at the Norwegian Medicines Agency, this was because the country's laws aren't sufficiently up-to-date. The agency has appealed.

In Poland, however, national reimbursement decisions have led to all patients being switched from branded somatropin to Omnitrope and back again, purely on the basis of price – achieving a similar result to automatic, price-based substitution by pharmacists.

In Germany, biosimilar EPO and growth hormone feature in agreements between payors and doctors' associations that set out minimum quotas of low-priced pharmaceuticals that doctors should aim to prescribe. In some regions, quotas for biosimilar versions of erythropoiesis-stimulating agents top 50% of defined daily dose, and further biosimilars are creeping in: as part of a pilot contract in 2010, the Nordrhein region introduced a minimum quota for somatropin biosimilars, too.

Meanwhile, Germany's Federal Joint Committee (the G-BA, responsible for cost-effectiveness assessments and national prescription guidelines) has also thrown biosimilar ESAs into the same reference price groups as originators, effectively signalling that such drugs are therapeutically interchangeable. Indeed, the agency has issued therapy advice for ESAs in cancer-related anemia patients, stating that "for this therapeutic use, all available ESAs are found to be equivalent." (G-BA's therapy advice for kidney-failure-linked anemia is currently being modified.) Thus here, therapeutic equivalence overrides any differences in the precise degree of similarity between any biosimilar and the original, and the products are distinguished almost entirely by price.

There are recent signs that legislators are catching up, too. A new law in Germany permits interchangeability between biosimilar versions of the same reference drug, provided they contain the same active ingredient and are manufactured using the same process. That in itself is far more restrictive than allowing interchangeability with the expensive original – it simply drives competition among the copycats. But this, plus new ESA guidelines stating that they should be considered comparable in terms of therapeutic application in anemia, takes Germany firmly in the direction of price-driven substitution.

But Price Still Isn't Enough: Branding Biosimilars

The upshot of this payor-driven price pressure, and a slowly growing familiarity and comfort with biosimilars in Europe, is some pockets of commercial success for individual products in specific markets. Sandoz claims its biosimilar EPO in Germany has captured over 60% market share, and also points to strong performances of its biosimilar filgrastim in the UK and Sweden. In the UK, cheaper copies of the Swiss group's neutropenia drug – branded Zarzio – reversed a cost-related decline in usage, prompting increased prophylactic use of the treatment (which aids bone marrow recovery in cancer patients after chemotherapy) to help avoid hospital infections. It's a similar story in Sweden, where filgrastim had also previously been used mainly as a rescue treatment but is now the number one G-CSF in the region, reported Samuele Butera, VP and head of biopharmaceuticals North America for Sandoz during a panel discussion at Elsevier's recent Pharmaceutical Strategic Alliances meeting in New York.

Much of Sandoz's success with filgrastim appears to have been price-driven: in the UK and Swedish examples, the biosimilar price discount for filgrastim reached 50%. On average, however, the differential has been less than that, in the 20%-40% range, according to Butera.

Despite this, even Butera admits that biosimilars isn't a price-only game – a lesson Sandoz learned the hard way, both in Europe, and in the US, where Omnitrope was launched in 2007 via the abbreviated 505 (b) (2) pathway. "We started with a very generic approach but learned very quickly from our experience with Omnitrope that this wasn't the way to market the products," he recounts. US pharmacy benefit managers care about price, of course, but also, apparently, about quality, delivery mechanisms and "the entire suite of services surrounding the product."

There's also some cost associated with switching, especially in the US where managed care organizations asked to convert to a biosimilar may face losing significant rebates enjoyed with an originator drug. This makes the process "challenging," Butera notes, although he wouldn't provide further detail on how Sandoz is trying to ease that pain.

The upshot is that Sandoz found it needed to have "more of a branded mindset," says Butera, who summed up the company's current position as "hovering between the two [generic and branded] spaces."

Not unexpectedly, Merck's Kamarck goes further, insisting that "the initial uptake of biosimilars in Europe signaled to us that it's not a generics market, but a branded market." He argues that injecting a "profoundly active biological product" into oneself is an emotional experience quite different from popping a pill, and thus requires quite different levels of comfort as regards the product's quality, efficacy and safety. All that impacts pricing, of course – though arguably an only modest discount may be enough to trigger uptake for the complex, second-generation drugs that the Mercks and Pfizers are joining the party for, given the high cost of the originals. Also see "And Now For The Real Biosimilar Opportunity: Antibodies And Complex Biologics" - Pink Sheet, 27 June, 2011.

Innovators Deal Their Way In

That branded mindset – and the promise of the second-wave biosimilars – has pulled in not only innovators like Merck and Pfizer, but also even more recent entrants such as Boehringer Ingelheim GMBH, which has also declared its intentions to compete in the area. (See [A#].) And BI isn't alone; a handful of other branded players, including Big Biotech, have moved closer to the water's edge. "I do think there will be a market" for biosimilars, said Biogen Inc.'s CEO George Scangos, speaking at Pharmaceutical Strategic Alliances. Biogen itself isn't about to initiate a big internal effort, though, since it has enough in its Phase III pipeline to focus on. But "we're in discussions now" with potential biosimilar partners, Scangos revealed.

Merck and Pfizer both used dealmaking to accelerate their entry into biosimilars. Merck had a somewhat false start after acquiring glycoengineering firm GlycoFi in 2006, and later realizing the technology was inappropriate for biosimilars (a pegylated EPO made using GlycoFi's platform was scrapped in 2010 after FDA requested CV outcome data. Also see "Merck Likes Biosimilars, But Not ESAs" - Pink Sheet, 11 May, 2010.[See Deal] In June 2011, Merck leapfrogged several places in the race to produce a biosimilar Enbrel by snapping up rights to a Phase III candidate in Korea belonging to Hanwha Group’s Hanwha Chemical Corp. that was better than its own. "Etanercept is tough to make the way the originator did; it has unique sugar modifications that even antibodies don't have," says Kamarck, adding that most of the rest of Merck's pipeline is now monoclonal antibodies. Merck also in January 2011 tapped Parexel International Corp.'s development expertise in oncology and immunology to help advance the pipeline, which now includes 8-10 candidates. Pfizer, meanwhile, having established a biologics presence at all via its Wyeth acquisition in 2009, accessed a suite of biosimilar insulins via its October 2010 deal with India's Biocon Ltd., for $200 million up front. [See Deal][See Deal]

These relative newcomers hope to leverage their branded experience, as well as their manufacturing and production expertise, to effectively compete in this hybrid sector. Also see "Opening A Door To Biosimilars In The US " - In Vivo, 1 September, 2010.

Still, the inferred move away from innovation as traditionally defined – in terms of new molecular entities – is part of the reason some are staying on the sidelines, for now. GlaxoSmithKline PLC claims that this still-nascent space is a distraction away from "our goal of advancing medicines that make a difference to patients," according to Ian Tomlinson, head of worldwide business development and biopharmaceuticals R&D (though GSK in December 2010 agreed to distribute Polish firm Bioton SA's biosimilar insulins in Russia). Branded pharmaceutical purist AstraZeneca PLC, perhaps unsurprisingly, doesn't want to know either: "We're not interested in biosimilars at all, only biosuperiors," said Jerry McMahon, PhD, SVP R&D and head, Oncology Innovative Medicines Unit, speaking at PSA.

It's Innovation, But Of A Different Kind

Kamarck argues that biosimilars do involve innovation; it's just a different kind of innovation. "We can make cell-lines quicker and more productively than some of the originators," he says, and yet the outcome is still a biosimilar as defined by regulators. It's also possible to change formulation to provide improved stability – for example, room-temperature stability to avoid the need for cold-room storage – without altering the drug's effect on patients, he argues.

It’s not just innovation in manufacturing, however. Pfizer's general manager, biosimilars, Diem Nyugen, PhD, emphasizes that creative clinical trial design can make biosimilars economically more feasible. "We're not necessarily following innovators' endpoints, but instead finding more efficient ways to prove clinical equivalence," she says.

Most of such development-stage “innovation” is focused on minimizing cost, which is critical given regulators' requirements for some clinical trials – a requirement that looks unlikely to disappear any time soon, despite significant advances in analytical techniques and the success of Sandoz/Momenta's enoxaparin. (In September 2011, FDA approved another Lovenox biosimilar competitor from Amphastar Pharmaceuticals Inc. and Allergan PLC, though Momenta in late October obtained a preliminary injunction delaying launch.) Momenta is positioning its analytics technology as, if not compulsory for biosimilars, then as offering "a significant competitive advantage in the field" through reducing the clinical trial burden, at least for approval purposes, according to CMO Jim Roach. Advances in analytical techniques such as those developed at Momenta lead Roach to hope that biosimilars "may someday be indistinguishable from the brands." And indeed, he and other proponents claim that already, the level of similarity achievable between a biosimilar and its reference product makes these copies as similar to their reference as those originals are to themselves, given manufacturing and process changes over the course of their life cycle.

The newest FDA pathway for biosimilar applications, known as 351(k), could in theory allow interchangeability – unlike in the European system. (See Sidebar Also see "The US Biosimilar Pathway: Unclear Just How Abbreviated, But Could Provide Useful Biosimilar 'Stamp'?" - In Vivo, 30 November, 2011..) It's far from an automatic right for any product approved via that route, however. Interchangeability has to be proven, first by showing biosimilarity to the reference product, as well as an expectation of producing the same clinical result. The statute doesn't explicitly require clinical trials, but does ask for a demonstration that "the risks in terms of safety or diminished efficacy of…switching between use of the biological product and reference product is not greater than the risk of using the reference product without such alternation…"

The devil will be in what constitutes such a demonstration. It's unclear whether the expected guidelines will help on that front, although interchangeability is expected to be addressed, along with some hint of the required clinical trial burden. And even if FDA does give any product a green light for interchangeability, it could still be blocked at state level.

Branded Players Don't Want Interchangeability

For most of the biosimilar pioneers, interchangeability was the holy grail, the ticket to product uptake and ultimate confirmation that these were viable copies with equivalent efficacy and safety. Sandoz's Butera still highlights it as "very important," saying that he believes biosimilar products should "generally be considered as interchangeable with the reference product."

For Merck and Pfizer, however, the longer it takes to adopt interchangeability legislation, the better. That’s because these branded players' model relies on success in distinguishing products that don't fundamentally do anything new, and isn’t wholly centered on the therapy’s price tag. It’s also “about what you can add to the patient experience," in terms of helpful delivery and administration, says Kamarck.

Both Pfizer and Merck are confident that interchangeability won't arise in the next five years. Regulators, doctors and patients "need the first five to seven years to gain comfort with biosimilars," argues Pfizer's Nguyen. Their confidence is probably justified. For now, both EMA and FDA talk more about similarity than equivalence, and both agencies also strongly espouse the case-by-case caveat that’s become a critical talking point in these early days of biosimilars. And both Nguyen and Kamarck note that cost pressures could one day drive interchangeability. Thus as Nguyen puts it, "it would be foolhardy not to prepare for both scenarios."

Testing Insulin In Emerging Markets – But Asset-By-Asset Applies Overall

Pfizer hopes to use its experience in emerging markets with biosimilar insulin to test the boundaries of what could one day turn into a far more price-driven market. The low-price, high volume insulin market, where several highly similar products already compete, is at one extreme of the price-sensitivity spectrum. As such it "provides a near-term opportunity for us to test the boundaries of these commercial models" for biosimilars, reflects Nguyen. In other words, it will provide a strong test of the company's competitiveness and differentiation, allowing the group to "determine the ideal balance between innovator-style thinking and a cost-conscious generic mindset".

At Pfizer, that cost-conscious generics mindset comes from the Established Products business unit, created in 2008 to stabilize and expand the Big Pharma's portfolio of off-patent, legacy brands. With $10 billion in 2010 revenues, the unit grew in the first quarter of 2011, during which time it accounted for more than 16% of Pfizer's overall developed market revenues. This heritage and the learnings from it, Nguyen claims, "allow us to cherry-pick what we believe is important in the biosimilar space," she says, such as speed-to-market, and cost. The balance between innovator- and generic-thinking won't be the same across all markets and therapeutic areas, though. Just as the asset-by-asset game applies in regulation, commercial strategy, pricing and positioning, so it may apply by region, too. Emerging markets are for now primarily self-pay, with services less important and pricing more so. As such, manufacturers' price points may be quite different in these markets. But even there, both pricing and uptake dynamics will also differ by disease: doctors will likely view a copy of a lifesaving cancer drug with a different level of scrutiny to that applied to a copycat treatment for a chronic condition like RA or diabetes.

And this point – that a cheaper version of life-extending Rituxan or Herceptin may find favor more quickly than a more cost-effective insulin or GH – is a big part of the reason many biosimilar veterans and newcomers agree that most of the market's real value has yet to shine through. (See Exhibit 2.)

Exhibit 2

The Race For Biosimilar Rituxan

Rituximab (sold as branded Rituxan and in Europe as MabThera by Roche's Genentech Inc. for rheumatoid arthritis and certain cancers) will be the first major antibody to lose patent protection in Europe, in 2013. Initially launched in Europe in 1998 for follicular lymphoma, rituximab has become the fourth biggest biologic in the world, with 2010 sales of over $6.5 billion. Key to its success has been its multiple subsequent approvals in a range of leukemia and lymphoma sub-populations.

Those racing to develop a biosimilar Rituxan include:

Company	Stage of Development	Comment
Dr Reddy's Laboratories	Marketed in India & certain LATAM countries	Launched as Reditux in 2007; $6m in 2010 sales
Sandoz	Phase III	In development for cancer and RA
Teva	Phase II	Partnered with Lonza Biologics
Samsung Group	Phase I	Part of JV with Quintiles, announced January 2011
Celltrion	Preclinical	Partnered with Hospira; due to enter clinic before year-end]
Spectrum Pharmaceuticals	n/a	Partnership with Viropo announced January 2011

Source: xxxx

Still More Questions Than Answers, But Cost Drivers Will Prevail

The remaining risks and uncertainties around the still-nascent biosimilars field are significant, all the more so given the high levels of investment already poured into the field (it can cost up to $250 million to develop a biosimilar, according to Sandoz). Besides the dilemma over which US regulatory pathway to use – a choice that will affect strategy, but also pricing and thus uptake – the lack of global biosimilar regulatory standards, even among developed nations, presents another problem for those seeking to build global franchises that achieve economies of scale. Even Europe and the US aren't entirely aligned, although FDA is "looking closely at the European experience" with regard to guidelines and product-specific requirements, according to Janice Soreth, MD, deputy director, FDA Europe Office, Liaison to EMA, who suggested in September 2011 that "companies may, fingers crossed, get both agencies on board with a single program of development."

Finger-crossing won't provide the most comforting level of reassurance. Meanwhile, a more specific concern is just how flexible US and European regulators may be with regard to reference products: currently, EMA requires a biosimilar to reference a product approved in Europe, and wording in the US legislation suggests a similar story there. Given that Europe was the first market to authorize biosimilars, the reference product issue hasn't really arisen yet (sponsors will, for European approval, have used European reference products). With the US market about to open up, the question arises as to whether FDA will accept dossiers referring to reference products in Europe or in other regulated markets. Soreth referred to talk between the US and EU agencies of bridging studies, but emphasized that discussions on this topic are still nascent. It's also unclear from the BCPIA legislation whether FDA will allow biosimilars to use the same international non-proprietary (INN) name as the reference product; most (although not all) biosimilars approved in Europe, including Sandoz's Omnitrope, Binacrit, and Zarzio, were granted the same INN as the originator drug. Ultimately, biosimilars sponsors are looking for a common reference product that's recognized not only in the US and Europe, but across all regulated markets, allowing global companies to operate more efficiently.

The overwhelming cost and access arguments in favor of biosimilars are too big to be held up for much longer by regulatory wrinkles, however. Developed-world demographic and economic trends, reflected in increasingly aggressive payor behavior, make biosimilars not only a compelling value proposition, but a necessity. The biosimilar incumbents and insurgents know that, just as they know that their competition will be relatively limited. Many of the smaller biosimilar pioneers, like BioPartners GMBH or GeneMedix PLC (now Reliance GeneMedix PLC), have been acquired or weeded out. BioPartners, which in September 2011 presented positive Phase III data for a once-weekly biosimilar human growth hormone with Korean partner LG Life Sciences Ltd. is part of Bioton; GeneMedix was acquired by India's Reliance Life Sciences. Meanwhile small molecule generic plays like Actavis Group , are interested in the space, but likely to compete at least initially in the lower-price end of the market, for instance around generic insulins.

Europe has highlighted biosimilars' challenges. In particular, it has highlighted the time and patience that's required to build prescribers' trust – just as was the case for small molecule generics, which took several decades to reach the levels of penetration they now enjoy. But the growing number of biosimilar success stories – and, significantly, the absence thus far of any safety scares, despite effective switching occurring in several countries – also hint at the biosimilar opportunity. It won't all happen at once. But so long as drug costs remain an issue, biosimilars look set to change the market.

Biosimilars: A New Kind Of Innovation

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