Large pharmaceutical and biotechnology companies will start openly developing follow-on biologics once Congress passes legislation authorizing an abbreviated approval pathway, Cowen & Co. analyst Ken Cacciatore predicted.

Once FDA is granted the authority to create biosimilars regulations - which most stakeholders believe could happen in 2009 - the market will quickly open up with new, unexpected players, Cacciatore said: branded drug companies.

While the fact that large-cap companies are even interested in capitalizing on the biosimilar market is largely shrouded in secrecy now, "they are working on it, and there's probably a lot more going on than we can imagine."

During FDC-Windhover's Pharmaceutical Strategic Alliances conference, Cacciatore, who follows the generic drug industry, said he has worked to convince his large cap and biotech colleagues that the biosimilars market will not shake out like it has for small molecules.

"From a Wall Street perspective, folks are thinking that it is going to be the generic group that can do it, and biotechnology investors have their heads in the sand, thinking it's going to be the generic industry as well, and that this won't impact them."

For Large Molecules, You Need Large Companies

But in reality, given that the capabilities to develop follow-on biologics are found in large-cap pharma and biotech, that is precisely where the market will develop. [Editor's note: Analysis of Big Pharma's role in the follow-on biologic market appears in a recent ¹ story from ² The RPM Report . To sign up for a free trial, visit www.TheRPMReport.com.]

With the exception of Teva, Cacciatore said, no generic drug company is prepared to jump into follow-on biologics. Biosimilars require manufacturing, sales and regulatory expertise - the kind that is almost exclusively domiciled in big pharma companies.

There's also the question of money: "You're going to need the capital structure to take this on," Cacciatore said. "If you look at the profit and loss statements of generic companies, they simply can't handle this."

"The only folks that really have the capabilities aren't the obvious players," he said. "Those are going to be the eventual winners - those that actually have the capabilities: large pharma and large biotech."

That competitive advantage gives pharma and larger biotech the luxury of "sitting back and watching to see how the legislation and the regulatory pathway evolves," Cacciatore said. "They can make a decision tomorrow if they want to pursue it."

Branded companies aren't exactly forthcoming with details when asked about plans for developing follow-on biologics. But recent comments from executives - as well as some of the deals those companies have signed - signal a clear interest.

Novartis is the most obvious example of a large pharmaceutical company with interest in expertise in follow-on biologics, given the company's Sandoz generic division.

But while Sandoz is an obvious pick given its experience with the human growth hormone Omnitrope , Novartis' future success in follow-on biologics is predicated not on Sandoz' experience as a generic drug manufacturer, but on what Novartis itself brings to the table in terms of biologics formulation and manufacturing capacity.

Indeed, Novartis executives have been quite vocal over the last year in talking up their commitment to producing "higher-value," "difficult-to-produce" generics (³ Also see "Sandoz Branding Itself As Generics Shop With Hard-To-Manufacture Products" - Pink Sheet, 15 September, 2008., p. 8).

Firms Are Already On The Follow-On Path

Novartis isn't alone. According to Cowen and other sources, several other large pharmaceutical companies are considering their options, including Lilly, Wyeth, Roche, Bristol-Myers Squibb, GlaxoSmithKline, AstraZeneca and Merck.

GlaxoSmithKline first signaled its interest in follow-on biologics with its $424 mil. purchase of Domantis. GSK highlighted the company's "next generation" of antibody therapy based on the smallest functional binding units of human antibodies (⁴ Also see "GSK Will Fold Antibody Developer Domantis Into Biopharmaceutical CEDD" - Pink Sheet, 8 December, 2006.).

Then-CEO J.P. Garnier said Domantis would allow GSK to "re-do a monoclonal for everything that is on the market, from Avastin to Rituxan. ... We can do our own version, without infringing IP, with a product that might even have a twist."

Pfizer has been less direct; CEO Jeffrey Kindler surprised analysts in March by stating that follow-on biologics could become a commercial opportunity for Pfizer once an abbreviated approval pathway is developed.

"Regardless of how the legislative or regulatory pathway may evolve" in follow-on biologics, "there is always going to be a competitive advantage in that space that will be a little bit different than in small molecules for pharmaceutical sciences and manufacturing," Kindler said.

Cacciatore added another piece of evidence - a phone call he received five years ago from Pfizer looking for advice on how to put together a strategy for developing follow-on biologics. The individual, he said, had mistaken Cowen for a consulting shop.

No Qualms About Copycatting

Biotech - both profitable companies and failed entities - are also interested. Despite having fought hard against the creation of a follow-on biologics pathway, they will have no qualms in copying their competitors' products, Cacciatore said.

"To think that they won't all turn on each other is naïve and foolish," he declared. "If there is money to be made, they will make it."

For many pharmaceutical companies, the model for copying biologics is already in place. Stephen Kaldor, CEO of Ambrx, a privately held biotech company, pointed to Lilly's improvements in insulin with Humulin and Humalog ; Roche's move from non-pegylated interferon to Pegasys ; and the Neupogen-Neulasta and EPO- Aranesp evolutions as examples of existing evergreening efforts in biologics..

"Do you see a trend here?" he asked the PSA conference attendees. "These are large pharmas fast-following themselves, producing a differentiated product for life-cycle management."

Given the branded industry's experience in copying their own products, it is not too great of a leap that they would start copying their competitors' products - especially given the dismal state of the proprietary R&D pipeline.

If it weren't for Teva, the branded industry would have that market to themselves.

Teva is "going to be a major player in biosimilars, and they are banking on it," Cacciatore said. The company has clearly stated its intentions in discussions with analysts, which in and of itself illustrates the company's seriousness in the market.

"If it were an easy thing to do, you wouldn't hear Teva talking about it,' Cacciatore said. "Teva does not talk about things, ever. This is why they beat the crap out of large-cap pharma - they just do it."

Generic Firms Will Need Partners

But in the case of follow-on biologics, Teva is talking about its strategy quite a bit, "which is interesting and a bit telling," he said. "If they could do it easily and nail it down, it would be less of a conversation."

Indeed, Teva dedicated a large portion of its investor day in February to opportunities in biosimilars. "Biotechnology and biogenerics are going to be the next wave of Teva generics in the coming years," CEO Shlomo Yanai declared.

"We're a long-term company with a long-term strategy, and we are investing now to create the infrastructure that will enable us to generate and create affordable, biogeneric products."

Teva has been active on the acquisition front to prepare: Sicor in 2003; CoGenesys in January 2008; and most recently, its generic drug competitor Barr Labs - a deal that included Pliva, the Croatian generic company that has some biosimilar capabilities (⁵ Also see "Teva’s Acquisition Of Barr Will Boost Research For Molecules Large And Small" - Pink Sheet, 28 July, 2008., p. 25).

Teva's aggressiveness in pursuing biosimilars is understandable. Given the small molecule field is drying up, Teva does not have many other options. "With the size of the company, the law of large numbers is catching up with them," Cacciatore said.

After Teva, however, there aren't many other competitors in the generic drug industry that have the near- or mid-term capabilities to compete in follow-on biologics, Cacciatore said.

Mylan's capital structure, for example, leaves it with few options outside of partnering. And beyond Mylan, "there aren't many obvious players. A lot of Indian manufacturers make noise that they have the capabilities in house to be able to go after this ... [but] they are going to need to partner to a greater extent."

- Kate Rawson (k.rawson@elsevier.com)

Follow-On Biologics Market Unfolding: Big Pharma Signals An Interest

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