Life after the small molecule
Since 2006 the growth of biologics has outstripped small molecules, and this trend is set to continue. So is the biologic the latest silver bullet? Or are the associated costs enough for pharma to put on the brakes? 
By Katrina Megget

The statistics speak for themselves. Biologics now account for 18% of the total global pharmaceutical market, with a value of $110 billion. In 2009, five of the top 10 products were biologics, and this is expected to be seven out of 10 by 2016. What’s more, it’s a market forecast to reach $149 billion by 2017 – no laughing matter when the small molecule counterpart for the same period is anticiated to show negative growth of -0.3%.

So it’s no surprise pharma is jumping on the biologics bandwagon. As Ben Duncan, senior analyst at Decision Resources, explains: “Big pharma is in a state of flux. Some of the biggest players have long relied on key small molecule drugs to generate growth, but with major patent expiries on the horizon companies are having to find strategies to plug the gap; biologics have therefore become an important target.” Biologics bring a number of advantages, such as extended product lifecycles and premium pricing. But it is the innovative promise that is particularly appealing, says Pamela Spence, UK and Ireland head of life sciences at Ernst & Young. “Biologics will become more important because they have a greater ability to be targeted and can be tailored to a specific patient population, which improves efficacy, increases assurance of outcomes, and raises the likelihood of payer reimbursement.”

And results speak for themselves with biologics twice as likely to reach the market compared with small molecule drugs, an analysis by the Tufts Centre for the Study of Drug Development shows. But, says Duncan, while companies may be looking to increase the percentage of sales derived from biologics, this does not mean the small molecule is dead. Quite the opposite; around 65% of deals within the top 20 pharma companies between 2008 and 2011 were for small molecules versus 25% for biologics. “Biologics aren’t ‘the answer’ to big pharma’s woes – they are merely part of the solution,” Duncan says.

This is a statement echoed by Nigel Gaymond, chief executive of the BioIndustry Association. “Biologics,” he says, “will form a substantial part of the future drugs offering alongside small molecules and new technologies such as those emerging from regenerative medicine.” And Claudia Schmitt, spokeswoman at Roche, agrees. The drugs giant is currently ranked number one in the biologics space and, in 2010, more than 69% of its sales came from these therapies. Schmitt says the company has gone down this route because that is where the science has led, but she adds, “you can’t limit yourself to certain fields”.  

At the heart of business strategy

However, biologics are clearly forming a central part of the business strategy going forward, especially when the so-called patent cliff is getting closer and the product pipeline is a little on the lean side. Consensus is that the traditional blockbuster model is no longer feasible and companies are increasingly considering niche products that were previously overlooked. Not surprisingly, a focus on rare diseases treated by biologics is becoming more popular.

According to Decision Resources’ Spectrum report on biologics, the blockbuster model is not “perishing” per se, but rather evolving, whereby “the multi-indication utility of many antibody-based therapies provides a ‘portfolio in a product’ scenario”.

It’s about approaching a disease from a therapeutic focus by “looking at how a molecule is understood and classified through its mechanism of action rather than treating the symptoms of a specific disease,” says Spence. In terms of drug development this will allow seemingly unrelated diseases to be managed and “is a promising story for the future”.

However, biologics must still face the tricky issues of pricing, reimbursement and market access. And first in class is not a sure-fire way to achieve reimbursement either. “In price controlled markets manufacturers will generally have to accept lower prices for new drugs that are not deemed superior to established agents within a class,” says Neil Grubert, director of pricing and reimbursement research at Decision Resources. “On the other hand, later entrants that are supported by evidence of superiority should be able to command price premiums.” For instance, Enbrel (etanercept) was launched after Amevive (alefacept) in psoriasis but performed well because of its superior clinical profile and cheaper price.

But it is a muddy playing field. With an annual price tag often in the tens of thousands of dollars, biologics will inevitably have a substantial impact on healthcare budgets and market access is not guaranteed. “Payers will increase pressure on biologics manufacturers by tough pricing negotiations, rigorous reimbursement decision making, increased use of health technology assessment and health economics, and aggressive cost-containment strategies once the drugs are on the market,” says Grubert. But it doesn’t end there, he adds. “Payers will increasingly demand evidence of superiority to allow generous pricing and reimbursement terms, which will increase the pressure on manufacturers to conduct comparative trials to generate the evidence to demonstrate this.”

Biologics will be restricted
Meanwhile, payers will also make more demands for post-marketing research and for data on real-world effectiveness, Grubert says. And even if the drug is able to enter the market, there are likely to be regional inequalities in access because of the decentralisation of reimbursement decision making. “Payers will inevitably focus particular attention on controlling the use of high-priced drugs, notably biologics,” Grubert adds. “In many cases, the use of biologics will be restricted to patients who have failed to respond to lower-priced therapies, while use will be terminated in patients who do not show an adequate response.” 

The variety of cost-containment strategies already employed throughout Europe is vast, including prescribing targets, step therapy (from low price to high price medicines) and generic substitution. However, conditional reimbursement agreements are becoming very popular with pharma, and payers in Italy, Germany and the UK have been particularly receptive to these. Indeed, last year saw UCB’s Cimzia (certolizumab pegol) approved for use on the NHS following agreement the company would pay the first 12 weeks of therapy, after which the system would pay only for those patients responding to treatment. However, given that they involve a substantial administrative burden, these schemes are best suited to high-priced treatments for relatively uncommon drugs. Furthermore, Grubert adds, the advantage of immediate reimbursement may come with the risk of future price cuts based on post-marketing research. For example, there is speculation in Italy that the drugs regulator AIFA may reduce the prices of several drugs covered by cost-containment deals by 30%-40% in 2011.

Outcomes-based pricing
But for many analysts, conditional reimbursement agreements are only the tip of the iceberg in getting biologics onto the market. Spence believes companies should be adopting an outcomes-based pricing strategy, aligned to the payer, if they want to see more approvals.

Janie Cox, manager of Decision Resources’ European physician and payer forum portfolio, agrees, saying manufacturers need to define the population that will receive the greatest benefit in order to justify a higher price. “According to payers we have interviewed, superiority versus comparators is crucial. In their view, a strongly predictive biomarker, a highly predefined target population and the potential for risk sharing are key to future market access,” she says. Roche is already attempting to meet these demands by taking a personalised approach to R&D. Says Schmitt: “In this way we can develop a drug with a companion test to ultimately offer a product that will help and benefit patients.”

To really gain a foothold, Duncan believes being able to prove innovation is key. But market access challenges will be ever present as the sector moves forward. Besides increasing demands for comparative clinical trial data, post-marketing research and real-world data, Grubert expects biologics to be subject to step therapy, distribution controls and demands for la rger discounts. There will also be the growth of value-based pricing, an increase in local reimbursement negotiations, monitoring of prescribing behaviour and the introduction of measures to promote biosimilar use. And that doesn’t include the impact of market saturation in areas that are currently biologic hotspots.

Pharma will have to respond to these challenges as it moves forward with biologics, Grubert notes. This will involve planning earlier in the product lifecycle, exploring the potential of companion diagnostics, enlisting the lobbying support of patient organisations and looking to wider societal benefits. Regardless of the challenges ahead, however, Duncan says biologics will remain a major component of big pharma’s longer-term growth strategy as companies seek to position themselves for ‘life after the small molecule’.
 

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