American Copycats: Can Biosimilars Catch On And Cut Costs In U.S.?
Americans need to spend less on healthcare. Anyone disagree? No country spends like we do: 17 percent of our gross domestic product the past four years, in fact, according to the World Bank. No other country—rich, poor, big, small, frozen, tropical, whatever—comes close. (OK, except for the tiny Pacific island nation of Tuvalu. Really.)
Now here come biosimilars. They’re lower-priced copycat versions of some of the world’s most lucrative drugs, and in the next few years, they’re aiming squarely to take market share from flagship biotech products such as adalimumab (Humira), bevacizumab (Avastin), filgrastim (Neupogen), and several others that have never seen an off-patent challenge. Even a small bite out of the projected $200 billion-plus in sales of biologic drugs by the end of this decade would help.
Six years after the Affordable Care Act, a.k.a. Obamacare, provided the framework to allow biosimilars in the U.S., the first one was finally approved in March: filgrastim-sndz (Zarxio). (I’ll explain the name later.)
It’s Novartis’s knockoff version of Amgen’s white blood cell booster filgrastim, which the FDA approved all the way back in 1991. Two weeks ago an appeals court gave Zarxio a green light to come to market after a challenge from Amgen delayed it by a few months. Novartis will start sales at a price 15 percent lower than filgrastim, according to Reuters.
So the gate is now officially open. But how quickly will competitors come rushing through?
“The underlying challenge is much much much more difficult than anyone thought,” says Coherus BioSciences CEO Dennis Lanfear, taking pains to emphasize his point. Coherus (NASDAQ: CHRS), of Redwood City, CA, is one of just a few venture-backed biotechs to start whole-cloth as a biosimilar maker. It had raised $220 million—about half through private equity sales, and half through collaboration fees and milestones—before going public last November.
It’s to Lanfear’s advantage to keep competition away, so it’s not surprising he would talk up the difficulty of the business. But other indicators suggest Lanfear is right. One of the early entrants into the business, Merck (NYSE: MRK), curtailed its BioVentures group four years after its ballyhooed launch.
Another small biotech making biosimilars, Cambridge, MA-based Momenta Pharmaceuticals (NASDAQ: MNTA), advanced its business in late 2011, announcing a potentially wide-ranging deal with Baxter International (NYSE: BAX). The collaboration could have held up to six programs; instead they’ve settled on one, an adalimumab biosimilar, and are aiming for launch in Europe in 2018, according to recent Momenta filings. (CEO Craig Wheeler did not respond to a request for comment. Early Momenta investor Polaris Partners, which now employs former Momenta CEO Alan Crane, deferred questions to Wheeler.)
In Europe, where biosimilars have been on the market for nearly a decade, sales have been disappointing. In a few countries, there are scattered successes; in Germany, for example, biosimilars have 55 to 60 percent of the market share for erythropoetin—the red blood cell booster that once helped Amgen (NASDAQ: AMGN) become an industry powerhouse—according to Simon Goeller, a McKinsey & Co. partner who specializes in generics and biosimilars. But overall, Goeller says, “predictions about the growth of the market have been grossly wrong.”
There are several reasons for the slow uptake. One is physicians’ caution when switching patients who have been on a “branded” drug to a biosimilar, Goeller says. That caution isn’t likely to dissipate soon, because more and more biosimilars will be monoclonal antibodies, proteins that play a key role in the immune system. Even slight variations, to be expected in biosimilars, can alter the patient’s immune response and cause issues ranging from safety problems to less effective treatment (because the patient’s immune system breaks down the drug before it can help the patient).
With that, then, I decided after the Zarxio news to ask two questions: How much will biosimilars really help the U.S. reduce its healthcare costs; and how many small, privately-backed companies like Coherus will be able to compete with the big, multinational companies that have already laid significant foundations in the space?
As I began to ask the first question, I expected optimism. After all, the powerful drug buyer Express Scripts (NYSE: ESRX), which has been out front in the fight to whittle costs of new drugs for hepatitis C and cholesterol reduction, jumped on the biosimilar bandwagon two years ago with predictions that just 11 biosimilar products could generate $250 billion in U.S. savings over 10 years.
But I immediately got pushback. Sure, biosimilars must save money to catch on, but “let’s be cautious about expectations” about overall healthcare savings, says Goeller. As of 2013, prescription drug sales accounted for slightly less than 10 percent of overall U.S. healthcare costs, according to the federal Centers for Medicare and Medicaid Services.
Conventional generics have come to dominate the volume of drug prescriptions in the U.S. since the generic drug age began in earnest in 1984; they’re now up to nearly 90 percent. The generic drug trade association, GPHA, says the U.S. saved $239 billion in 2013 by using generics (out of a total prescription drug spend of $271 billion).
But they are only a slight brake on healthcare costs. The past two decades, overall U.S. healthcare expenditures per capita have risen 240 percent, according to the World Bank.
Adding to the tempered expectations for biosimilars as cost-cutters is the fact that they won’t be as cheap or easy … Next Page »