Lack of guidance from FDA means biosimilar manufacturers bear significant risks, including initiating costly clinical programs without the benefit of the agency's formal insights and the possibility that precedent-setting applications will require lengthy review times.
Early adopters believe that by testing the regulatory environment now with less complex biogenerics they will be better prepared to launch the more complex antibody or fusion protein versions that will ultimately prove more lucrative.
Rather than testing the abbreviated – and still unresolved – biosimilar pathway, many industry players believe using the traditional BLA pathway is the smarter strategy.
In order to become a high profit margin business and demonstrate real savings to the health care system, a streamlined, abbreviated pathway must be created for follow-on.
Just after the passage of health care reform legislation in March, debate over the viability of the biosimilar pathway hit a peak in the industry. With a number of provisions seeming to favor brands, some generic drug companies vowed not to use the new abbreviated pathway. But now, months later, as the dust has settled, the reality of biosimilars in the US is inevitable. The question is no longer if generic-like biologics will reach the market. The questions are more complicated and nuanced. Among the most important: who will get there first with which drugs, through which pathway – and at what cost?
The pharmaceutical industry is approaching the biosimilar market much like early explorers panning for gold; a handful of pioneers are forging ahead into the market, which could make the way smoother for the drug makers that follow – if the business model proves successful. Early entrants staking claims include Merck & Co. Inc., Teva Pharmaceutical Industries Ltd., and Novartis AG, through its Sandoz generic drug unit. But others too, from big pharmas like Pfizer Inc. to the hospital-focused firm Hospira Inc. and traditional generic drug companies including Watson Pharmaceuticals Inc. and Mylan Inc. are looking to carve out a piece of the market, eyeing the potentially high profit margins of what is perceived as being a less risky area of drug development compared to innovator biologics.
Not to be discounted are smaller, regional players in China, South Korea and India, which can take advantage of well-educated returnees and cheaper labor costs in their "pharmemerging" countries. In particular, Indian firms such as Dr. Reddy's Laboratories Ltd. and Biocon Ltd., which have built strong positions as small molecule generics providers, are turning their intellect, capital, and molecular know-how to the problem of biosimilars . While these firms aren't expected to quickly penetrate the highly regulated US market near-term, multinational competitors would be foolish to discount their capabilities.
It's not hard to understand why big pharmas with lackluster novel pipelines and generic drug companies facing a drop-off in the small molecule patent cliff might be attracted to the biosimilar opportunity. Given the high barriers to market entry, which will limit competition, and the exorbitant prices biologics command, the payoff for those who do succeed could be substantial. The worldwide market for branded biologics is about $120 billion, according to IMS Health. In the US, $15 billion in patented biologics – from Amgen Inc./Pfizer's Enbrel (etanercept) to Roche's Rituxan (rituximab) – are expected to expire between 2009 and 2013, the market research firm estimates. Additional cash cows will likely follow in the latter part of the decade, including Johnson & Johnson's Remicade (infliximab), Abbott Laboratories Inc.'s Humira (adalimumab) and Roche's Avastin (bevacizumab).
But getting to market won't be easy. It will require wading through murky regulatory and legal waters that FDA itself has yet to navigate. For the most part, the current health care legislation leaves specific details of the regulatory process and clinical trial requirements to the agency's discretion. Nor has FDA provided any guidance on how industry should develop biosimilar drugs and what clinical shortcuts might be deemed acceptable. That puts companies looking to get a head start in the market in the uncomfortable position of initiating costly clinical programs without the benefit of FDA's formal insights.
Since biologics are hard-to-replicate proteins produced using living cells, clinical trials will almost certainly be required for FDA approval. That's because small changes in the manufacturing process can alter both the molecules' pharmacodynamic properties and immunogenicity, raising questions about safety and efficacy. But how extensive those clinical programs will need to be is the multibillion dollar question. The only known certainty: the development process will be more complicated and expensive than the ANDA process used for small molecule generics.
And a biosimilar's approval won't necessarily ensure its commercial success. At market launch, drug makers face additional unknowns that could directly impact a molecule's potential to generate robust revenues. These include questions about patient and payor acceptance, commercial scale-up, intensity of competition, and the level of price erosion.
Thus, it's not hyberbole to suggest early adopters are making very high-stakes wagers on the biosimilar opportunity. To gain the desired development, regulatory, and commercial expertise, they must be committed to making large investments in the space up front, with no guarantees of an eventual payout. "I would not expect a company to launch a biosimilar profitably in the US within [the next] three years," predicts Michael Malecki, PhD, product director and head of biosimilars research at the research firm Decision Resources. "What we've seen so far is a company like Teva, which has biosimilars in Europe, has not recouped their costs fully. It looks like they are spending money up front to learn how to get biosimilars on the market so in the future they can do so more efficiently."
As much as possible, early adopters are trying to curb these risks by first testing the limits of the existing pathway with less complicated biologics such as alternatives to branded human growth hormones, insulins and Amgen's erythropoietin stimulating agent Epogen (epoetin alpha). The belief? The knowledge gained from bringing these less complicated biosimilars to market will pay off when it comes time to launch more complex versions, such as monoclonal antibodies or fusion proteins.
Big Pharma And Generics Face Off
The front-runners have been working in the biosimilar space for years. Teva and Sandoz, the world's largest generic drug companies, already market biosimilars in Europe and have been at the forefront of the push to bring biosimilars to the US. Merck, while a traditional brand drug company, has nonetheless been eyeing biosimilars at least since 2006 when the company acquired GlycoFi Inc., gaining access to a sugar-modification technology to develop biosimilars. Merck announced the formation of Merck BioVentures, a unit dedicated to biosimilars, in 2008, along with plans to have five biosimilars in development by 2012.
But even Merck, with its clinical development savvy, has hit early stumbling blocks, demonstrating just how challenging it may ultimately be to weigh biosimilar development costs and risks against market opportunity. The company discontinued one of its first biosimilar programs – a pegylated version of Amgen's ESA Aranesp (darbepoetin alfa) – earlier this year, citing the cardiovascular safety risks associated with ESAs and the increased clinical studies that would be required to meet regulatory demands as a result.
Time will tell if Big Pharma or the leading global generic firms are best positioned to compete in the space, but ultimately both probably have what it takes: clinical development capability, access to biologics manufacturing, commercial infrastructure, and deep pockets to buy what's lacking. Teva, for example, shored up its biological manufacturing capacity through a joint venture with the Swiss contract manufacturing group Lonza Group Ltd. in January 2009.
A priori traditional Big Pharmas may have the edge when it comes to development, marketing prowess and commercial footprint. But the big generics players understand – at least in Europe – how to sell biosimilars and have created lean, cost-efficient organizations, a must if biosimilars are to become a profitable enterprise. Plus, the biogenerics market represents a conflict for Big Pharma, which risks cannibalizing its brands and undermining its core marketing message of being an innovator by getting involved. The line has been easier to walk for Merck and Pfizer because they have less of a heritage in biologics, though both acquired these capabilities through their respective acquisitions of Schering-Plough Corp. and Wyeth.
Other big pharmas with a significant presence in innovator biologics like Roche and Bristol-Myers Squibb Co. are so far staying out of the game. An AstraZeneca PLC representative says the firm plans "to focus on innovation, not biosimilars ," while Eli Lilly & Co. seems on the fence. "Lilly doesn't have a broad-based biosimilar strategy that we are pursuing right now. Eventually, individual decisions may be made based on specific therapeutic areas or geographic regions, but those will be on a case-by-case basis," a company spokesperson says. Perhaps not surprisingly given Sanofi-Aventis' emphasis on tapping external sources, the French pharmaceutical is building its biosimilars capability primarily via licensing, including a low cost deal with India player Shantha Biotechnics Ltd.
Neupogen: A Good Biosimilar Test Case
Teva, Sandoz, and Merck have set their sights initially on biosimilar versions of Amgen's granulocyte colony-stimulating factor, Neupogen (filgrastim). That's not too surprising: Neuopogen is one of the smaller, simpler biologics and because competing biosimilars are already on the market in Europe – including Teva's TevaGrastim – there's at least some guidance in terms of required regulatory benchmarks. In addition, because the molecule can be produced in bacterial cells rather than the more expensive mammalian expression system, the Chinese hamster ovary system, manufacturing Neupogen biosimilars should be less capital-intensive. There's also less risk of immunogenicity or altered biological activity because of changes in glycosylation, a post-translational modification limited to proteins produced in yeast and mammalian cells, which could result in additional variability between the innovator and biosimilars product. Interestingly, the two leaders in the regulatory race – Merck and Teva – have opted for opposite pathways to approval.
In one of the ironies of the emerging biosimilar arena, it is Teva, the traditional generic drug company, which is taking a more conventional, innovator-style approach, filing a full Biologics Licensing Application for its follow-on product. In contrast, Merck, the traditional biopharma player, aims to be the first to file through the new – and still unspecified – abbreviated pathway. Teva filed for FDA approval of a GCSF product, XM02, for chemotherapyinduced neutropenia, using the traditional biologics application process in November 2009 before the biosimilar pathway was established in March. But even if the pathway had been available, Teva would have opted for the full application instead.
Like some other generic drug manufacturers, Teva has been an outspoken opponent of certain provisions in the legislation that it says favors brands. Among the provisions that generic drug makers oppose are 12 years of exclusivity for brands, litigation proceedings that require a biosimilars dossier to be handed off to the originator company at time of drug filing, and "evergreening" provisions, which generic companies claim would provide additional exclusivity for minor modifications to an existing drug. Indeed, according to Teva North America CEO William Marth, using an undefined pathway is simply too risky. "For the foreseeable future Teva will continue to follow the pathway for new biologics rather than biosimilars," he said in an email. "In our opinion, the biosimilars pathway is still undefined, and we need to be fiscally responsible to our shareholders and focus our efforts wisely."
Merck, on the other hand, sees an opportunity to help shape the regulatory framework for biosimilars by being among the first to file through the abbreviated pathway. "For our first product we are going through the pathway because we think if you are not players in that space and you are not using the pathway then you give up your opportunity to create it," said Merck BioVentures president Michael Kamarck in an interview in June. He believes companies that engage with FDA will actually be better positioned in the long run because they can help define key elements such as clinical development requirements. "When the regulators create a pathway like this they are actually asking you to help them really carve what the space looks like." It's anybody's guess which regulatory route will prove more successful, but industry may gain an inkling in the not too distant future. Merck is apparently in the final stages of preparing to file its Neupogen biosimilar through the abbreviated pathway, although the pharma has yet to confirm the drug's filing status. Certainly there are positives and negatives to being a test case.
Participating in one-on-one interactions with the FDA is clearly invaluable, and having the opportunity to influence the agency and get direct feedback on a program could hasten clinical development requirements and timelines. But at the same time, precedent-setting drug applications have a tendency to get tied up at FDA for years. Take for example Sandoz and Momenta Pharmaceuticals Inc.'s long regulatory road to approval for a generic version of Sanofi-Aventis' low molecular weight heparin Lovenox (enoxaparin). Though Lovenox is not a biologic, it is a larger, more complex small molecule, and so the generic application was widely viewed as offering insights into FDA's thinking on the biosimilar space. FDA eventually approved the application July 23 – and did so without requiring any clinical trials as Sanofi had urged in a citizen's petition. But the review took a lengthy five years, and two other ANDAs for enoxaparin, filed by Teva and Amphastar Pharmaceuticals Inc. two years earlier, in 2003, are still pending at the agency.
Sandoz's human growth hormone Omnitrope (somatropin) is another case in point. Omnitrope is technically the first follow-on biologic approved in the US, though it was approved in 2006 under the 505(b)(2) regulatory pathway, which is an abbreviated regulatory route for new drugs that allows the application to reference safety and efficacy data of an already-approved drug. In the case of Omnitrope, Sandoz included a distinct 89-patient clinical trial and referenced Pfizer's innovator compound, Genotropin (somatropin). Since no biosimilars pathway existed at the time, Sandoz chose the 505(b)(2) route to get Omnitrope to market, as a means of pushing the biosimilar agenda at FDA. Still the approval process was fraught with legal drama. It took three years from the time of Sandoz's filing date for Omnitrope's approval – and the regulatory victory didn't transpire until Sandoz filed suit against the agency and a federal court ruled FDA violated the Food, Drug & Cosmetic Act by not acting on the application.
Still, some feel FDA has too much to lose if it fails to act swiftly on the nascent biosimilar legislation. "[FDA] will need to tell people what the plan is, and I think they are going to need to do so very quickly, and the reason that's true is for political reasons," speculated Paul Kim, a partner at the Washington, DC, law firm Foley Hoag, during a webinar on biosimilars sponsored by Elsevier Business Intelligence. Executives point to FDA's sudden action on Lovenox after five years as a major positive – especially since the agency approved a generic version that is fully substitutable without clinical studies. "I think it bodes well for the future," said Sandoz global head Jeff George in an interview. In addition, the agency needs to prove that it has the scientific expertise and management savvy to handle the responsibility Congress has handed it. After all, the agency is already behind its European counterpart, the European Medicines Agency, on biosimilars . The EMEA, which began work on a regulatory framework for biosimilars close to a decade ago and approved the first biosimilar in 2006, is already working on the thornier problem of guidance for monoclonal antibodies.
Even with such political forces at work, Kim cautioned applicants looking to be first through the process to be prepared for a long road. "To be a pioneer is a painful experience," he said. "Lewis and Clarke crossed over several ridges barefoot. Effectively, it's going to be replicating that kind of experience."
To BLA or ABLA—That Is The Question
Indeed, many analysts predict that in the current safety-first environment at work at FDA, the agency won't take its responsibility lightly, preferring to take a hard-line approach with the first applications that come under review.
"FDA is an unknown territory here and because of all the pressures they have in regards to drug safety they are unlikely to take that lightly, so they may be more cautious," Datamonitor analyst Tijana Ignjatovic says.
FDA's new safety program for drugs, Risk Evaluation and Mitigation Strategy (REMS), may be the most recent example of how the agency has approached the implementation of a new program that involves drug safety. The agency began approving the first REMS for drugs with serious adverse events in 2008. For some of the initial drugs approved with REMS, the process resulted in a delay of several months, but at the same time the availability of the stricter safety program is thought to have opened the door for the approval of some drugs that might not have passed muster with FDA before.
Amgen's platelet producer Nplate (romiplostim) for chronic idiopathic thrombocytopenic purpura was an early test case. It was approved in August 2008 – after a four-month hold-up – with a strict REMS, including a controlled distribution system. Given the safety risks associated with the drug, including bone marrow fibrosis, thromboembolic complications, and risk of hematological malignancies, it's unlikely it would have made it to market at all without the safety program. Plus, the experience Amgen gained working with FDA armed the company with the know-how to act quickly in developing a safety program for a more significant revenue driver, Prolia (denosumab), when it was called on to do so in 2009.
Some biosimilar players believe they can hedge the regulatory risk by opting out of the ABLA pathway altogether in the nearterm while still helping to guide FDA.
"There is an opportunity with the FDA, no matter which pathway you take, to help shape their thinking," Sandoz biopharmaceutical head Ameet Mallik, maintains. "Either way, whether you take a biosimilar or BLA pathway, I think [FDA] are thinking about follow-on biologics differently, and we have an opportunity to shape their thinking."
Hospira senior vice president of R&D and medical affairs, and chief scientific officer Sumant Ramachandra, MD, PhD, agrees, emphasizing that general dialogue with FDA on the issue is more important than establishing bragging rights by testdriving the nascent ABLA pathway. "I don't think we are concerned about being the first," he says. "We know there will be challenges to being the first. I frankly believe that by being early into this process or talking to the FDA early and having conversations with them about the pathway we can help shape the guidance."
Sandoz and Hospira haven't said outright which pathway they plan to use for their initial biosimilar forays, preferring to make decisions on a molecule-bymolecule basis. Both companies, however, are serious contenders given they have biosimilars on the market in Europe and extensive development programs in their pipelines. Sandoz has three marketed biosimilars in Europe and eight to 10 in development. Hospira has two biosimilars on the market in Europe – a version of Amgen's erythropoietin stimulating agent Epogen and a filgrastim product – and 11 biosimilars in development, six from in-house research and another five from a partnership with South Korea's Celltrion Inc. In July, Hospira announced the initiation of a US Phase I clinical trial for the Epogen product, testing safety and pharmacokinetics compared to the reference product. The company intends to launch an expanded Phase III trial in 2011 if the safety and efficacy live up to expectations.
Watson, meanwhile, is content with being a late-comer to the market. "Some people are asking why we are not in the first wave of biologics," notes EVP of global brands G. Frederick Wilkinson.
"We are okay with that because we are watching others today." Watson expects to launch its first biosimilar post-2015. "It's still going to be several years before you see us commercializing a biologic," he predicted. In July, Watson announced its first foray into the biosimilar space, a tie-up with Itero Biopharmaceuticals Inc., in which Watson gained global rights to a recombinant follicle stimulating hormone, a biosimilars version of Merck KGAA's Gonal-f (follitropin), still in preclinical development.
For Profits, Abbreviated Development Is A Must
Ultimately, a viable pathway will have to be created and used for drug makers to take full advantage of the biosimilars opportunity, and to create savings for the health care system. Conducting a full clinical program to replicate every innovator biologic won't generate the profits manufacturers are looking to deliver. While completing a BLA with a full clinical program for a molecule like filgrastim in one indication might not be overly burdensome, doing the same for a more complex biologic across multiple indications (say a tumor necrosis factor inhibitor like Enbrel or Humira or a CD20 blocker like Rituxan), is simply not cost-effective. A key to the abbreviated path is that it holds the potential for approval of biosimilars across multiple indications.
As Hospira's Ramachandra cautions, there are risks to overly excessive clinical demands. "While it is important to do the studies to establish safety and some level of efficacy, it shouldn't go to the other extreme of having massive trials reconducted in patients for diseases when we know they have treatment options just to generate data for regulatory hurdles," he said. "It really should be focused on what is needed for safety and what is needed to establish efficacy."
Consensus is emerging from industry about what would constitute a fair abbreviated development program. Many in the field assume the chemistry, manufacturing, and controls portion of a dossier will be rigorous and that a Phase I trial will be required to establish safety and some level of pharmacokinetics. But a shortened development timeline – and cost savings – could come from skipping Phase II and moving directly into one pivotal trial instead.
"An abbreviated pathway should be fully rigorous, but probably should involve some Phase II reduction," Merck's Kamarck asserted. "So in that reduction there should be some speed advantage and some cost advantage, but we think absolutely that you have to do the full Phase III clinical. "Others in the industry expect that the more analytics done up front to demonstrate similarity to an innovator drug, the less clinical work FDA will require. "The closer your molecule is the less burden of proof there is on the clinical side to prove that you have similar efficacy, safety and quality to the originator molecule," Sandoz' Mallik says.
That's the logic behind Momenta's biosimilar strategy, which relies heavily on analytic capabilities. "If you can make these molecules within the band of variation of the innovator molecules then you should be able to do comparability protocols very similar to what people do in manufacturing changes for regulator biologics," president and CEO Craig Wheeler says. "There's no need at all to do broad, multi-year efficacy studies if you can show demonstrably that you're the same."
Merck puts the price tag for replicating a clinical trial program for an innovator monoclonal antibody at about $500 million without any clinical reduction, but Kamarck estimated the cost could be reduced by 30% through an abbreviated program. Sandoz and Hospira believe the cost of developing a biosimilar is in the $100 to $150 million ballpark, though both acknowledged that the costs would be substantially more for a more complex program.
Numerous Commercial Questions Remain
But being successful in the biosimilars space will largely depend on the level of competition. If only a few biosimilar manufacturers bring a certain molecule to market, competition – and thus, price erosion – will be limited, which will keep profit margins high. The consensus among leaders in the industry, based in part on experience in Europe, is that biosimilars will cost about 30% less than the original innovator drug, though the level of erosion will depend on the complexity of the molecule and the number of biosimilars in the space. That means a drug like Enbrel, which generated $2.3 billion in US sales in 2009, could still generate around $750 million in sales annually if it captured just one-third of the market, even with a price reduction of 30% and three sellers in the market. For molecules that are easer to make that have been on the market longer, such as a first-generation ESA or first-generation GCSF, "we expect the discount could get down to 50% of what the brand otherwise would have been," Decision Resources' Malecki predicts. But in either case, the economics are vastly different from the small molecule generic space, where an influx of off-patent rival drugs can erode pricing to just a few dollars.
Certainly experience in Europe suggests innovator companies compete on price once a biosimilar enters the market, which helps the brand to retain market share. Experience with biosimilars in Europe varies from market to market, but according to IMS, follow-on versions of Neupogen had vastly different penetration rates depending on a country's health care system. According to IMS, for instance, at the end of 2009, Neupogen biosimilars had captured about a 25% volume share of the market in Germany, but only about a 15% share in France.
Since selling biosimilars will require more than just competing on price, there will undoubtedly be additional costs – and commercial risk – associated with biosimilars . Indeed, it will require a specialized commercial organization to negotiate formulary placement with payors and target physicians and patients. Unlike small molecule generics, which are automatically switched out for brands at the pharmacy, biosimilars are not expected to be interchangeable, at least in the near-term, even though the legislation does allow FDA this option. At least initially, payors are unlikely to push the envelope on interchangeability until they've had some assurance on safety, a process that will take time as they amass evidence based on slowly growing patient numbers. Nor are physicians likely to prescribe newer biogenerics – especially in life threatening diseases – until they are satisfied the safety and efficacy of those products mirror the innovator compounds.
Near-term that means biosimilar players will have to invest significantly to build both their managed markets and sales groups. The level of investment required depends on the therapeutic area in question. In a report on the biosimilars market released in February, UBS analyst Jeff Elliott speculates that an anti-inflammatory biosimilar, such as an anti-TNF, would require a sales force of 400 to 500 reps, and an oncology product would require a force of about 250 reps. "Based on sales and marketing expense as a percent of sales for large-cap biotechnology companies and assumptions that a smaller effort would be required for FOBs (counteracted by lower selling prices), we estimate the relative cost of sales of approximately 35% to 45% of sales for RA and 25% to 35% for an oncology product," he said.
Thus, building a profitable business won't happen overnight, as has more generally been the case with small molecule generic drugs. Using Neupogen as a hypothetical example, UBS researchers determined that it would take four years for a company to break even, assuming factors like a 30% price discount for the biosimilar, a 30% penetration rate for biosimilars in general, and a 35% share of the biosimilar market for the particular product.
Still, many execs argue the need to detail physicians and negotiate with payors will subside over time. "One of the things we have learned from Europe on the commercial side is that as payors and physicians learn more about the entire biosimilar concept and gain more experience and familiarity with biosimilars, we've had increasing success in debunking some of the more common myths about comparable quality, safety and efficacy," says Sandoz's George.
For now, as with any new venture, the uncertainties are many. That's what creates risk – and reward.
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