Only Blockbuster Biologics May be Viable for Biosimilar Manufacturers

Biosimilars are finally a reality in the US drug market, but a report warns regulatory decisions may limit future savings from the drugs.

With today’s milestone of the first biosimilar to be approved in the United States, estimates for the potential savings from the drugs vary.

A paper published in February 2014 on the Social Science Research Network projected that over the next 10 years, American consumers could save more than $250 billion from biosimilar competition from just 11 biologic drugs if they were approved by the FDA.

The optimism for the savings ultimately realized from biosimilars may be overstated, however. A new report sponsored by Prime Therapeutics projects that biosimilars will achieve savings, but adverse regulatory decisions and market risks may cause manufacturers to carefully consider pouring resources into the research and development of the drugs.

Ultimately, the report finds there may be a less than robust market awaiting biosimilars that could potentially reduce the savings for payers and consumers as a result of regulatory hurdles at the state and federal level.

The report, authored by economist Alex Brill, projects that even under favorable assumptions, only biosimilars for biologics with sales greater than $898 million would be worth the investment for manufacturers. As a result, biosimilars for biologics with a smaller sales market may never reach the market.

In an interview with Specialty Pharmacy Times prior to today’s approval of Filgrastim-sndz (Zarxio), which is a biosimilar of Amgen Inc’s filgrastim (Neupogen), Brill and Prime Therapeutics Chief Clinical Officer David Lassen discussed the new report and projected the immediate future of biosimilar development.

SPT: What are the regulatory decisions currently affecting biosimilar development?

Brill: The way our model is constructed starts with a set of assumptions taken from the congressional budget office at the time the [Affordable Care Act] was enacted. Since the ACA was enacted, the actual marketplace for biosimilars might be developing slightly differently than what was anticipated, and of note is what is happening on the state level. A number of states are considering legislation, or have enacted legislation, that would make the substitution between reference products and biosimilars more difficult. If it’s more difficult for patients to get a biosimilar, then the manufacturer will anticipate that. I’m sure they’re watching and fighting the battles on the ground in those states. If their market isn’t sufficiently large to allow them to recoup their [research and development] costs for difficult to copy biosimilars, then they may choose not to enter the market at all. The battle is state-by-state on the substitution law issue, but what we’re looking at is the net effect or aggregate effect if a large number of states, or some number of populous states, make biosimilars less accessible. That’s going to have the effect of pushing biosimilar manufacturers out of the market altogether.

SPT: What are the major barriers that need to be overcome for biosimilars to hit the market?

Lassen: Prime favors keeping consistent naming conventions for biologics and biosimilars to prevent patient and prescriber confusion. Additionally, the FDA we feel should minimize additional barriers to clinical testing. We acknowledge that testing is necessary, but forcing unnecessary clinical studies clearly will delay patient access to equally safe drugs and will impact the overall return for manufacturers considering whether or not they enter into the development of biologics.

SPT: What will go into manufacturer analysis as to whether a biosimilar is worth pursuing?

Brill: Biosimilars are very expensive to develop and time consuming, so estimates range from as low as $100 million up to $300 million in development costs to bring viable biosimilars through the [research and development] process compared with a couple million dollars for a small molecule. So the decision by a biosimilar manufacturer is not taken lightly. They’re going to have to spend an average, we estimate, of 8 years and a couple hundred million dollars to develop this product. So they’re going to be asking themselves the question what does the back end look like? Once they spend all that time and money, how big will the market be in order to recoup those costs?

So the model is trying to balance, on one hand, the cost of developing and manufacturing the product against the flip side of the market opportunity. So we rely on a set of assumptions from the literature in this space about what market share that biosimilars are likely to capture, what price discounts that are likely going to be required of the biosimilar relative to the reference product, and ask the question how big does the biologic reference product need to be in order for the [manufacturer] to say ‘yes, we can enter the market, we can make our money back and earn a reasonable rate of return.’ So all these [research and development] costs, post marketing costs, plant retrofitting costs, are all discounted, aggregated, and weighed against what we call contribution margins or free cash flow, or market share anticipated from biosimilars.

The results of this are that if there is a small biologic then there is no way that biosimilars will enter to compete against that product because their costs are too high. They won’t be able to recoup their costs. Conversely, for products that are very large, $900 million in base case or $1.3 billion in one of our alternative scenarios, the biosimilar manufacturer is likely to say ‘ok that market is big enough for us to be able to recoup our costs and earn a reasonable profit, so there we will enter and we will compete.’ That will generate savings for payers and consumers.

SPT: Why does the report predict the market for biosimilars to shrink despite the projected spending growth for specialty drugs over the next decade?

Lassen: As Prime looked at our own data to forecast what the opportunity for new blockbusters would be, if you look at our top 10 biologic drugs across the book of business as defined by annual sales over the last 8 years, you’re going to find that going all the way back to 2008, our top blockbusters comprised about 68% of our total spend on the pharmacy side. Fast forward to 2014, and those blockbusters in the top 10 biologic drugs only comprise 61%. As we go out 10 years from now, we predict the top 10 biologic blockbuster agents will only comprise 30 to 40% of spend, meaning 60 to 70% of drug spend is going to come from biologics that are smaller revenue generators. This compels us to believe the overall market opportunity is shrinking.

SPT: Which patient groups are poised to gain the most benefit from the introduction of biosimilars?

Lassen: Clearly in those areas that have had top 10 biologic drugs to date, and that is changing as we look into the future. We have at Prime what we call specialty watch lists comprised of agents that 6, 9, 12 months out, we’re starting to plan for their launch and we believe they’re going to be considered a blockbuster. We have certain criteria to determine what that is, one of which is total anticipated sales being over the $1 billion to $2 billion mark. So with that it allows us to get a good sense of what is coming and what is going to be the future blockbuster.

Currently, oncology obviously is an area where the pipeline is rich and there continues to be opportunity. Just 3 weeks ago we had an agent come out, Ibrance, which right out of the gate is likely to be a first line treatment for breast cancer. So that is an emerging scenario and oncology is probably going to be one of the top areas. Now you look at the opportunity that is going to be 12 years out, so going back in terms of what is currently an opportunity in terms of the biologic pathway coming to fruition, in the near term the focus is going to be in blood modifier areas like what we are seeing with Neupogen or Neulasta. Clearly there are opportunities around biosimilars for rheumatoid arthritis, Crohn’s Disease, modifiers and inhibitors. Those are probably closer, but even then we are looking at 2017 at the earliest before we see real opportunities that we believe will bear fruit.

SPT: What factors go into a manufacturer’s decision as to whether they can recoup their research and development costs for a biosimilar?

Brill: The manufacturers are looking at 3 things: the size of the patient population, the price points for the reference product, and trying to project the trend in that space. If there is a product very successful at the moment, but they expect it to be rapidly declining in market share, that might discourage them from entering the marketplace. But there are other factors too. They could be looking at strategic factors as well, but in general they’re going to be looking at total revenue in the market space for the product.

SPT: What do you predict to be the long term impact of biosimilars on drug spending?

Brill: My view is we are on the cusp of a number of biosimilar launches in the US. There are 5 applications pending with the FDA, so that is going to have a positive effect on the marketplace to help control some of the drug spending. Obviously they will have an impact on the specific market to which they will be acting, but we don’t want to get too excited here. There are lots of products for which we are not anticipating biosimilar competition. Policy makers, the regulators on the federal level and the lawmakers on the state level, their decisions effect how robust the market is going to become over the next few years. So the more certainty, the more clarity they can establish, the more favorably inclined they are to promoting a robust and competitive marketplace for these products, the more likely biosimilar manufacturers are going to have confidence and enter the US market here. We want to have, in my view to maximize the savings, opportunities to have multiple competitors when appropriate for a given reference product. We want to see competition, not just at the top, but at the middle of the product line as well.

Lassen: I think we will see, perhaps, modest reductions in spending in some instances but probably not by any means to cause a significant impact to trend any time soon. That is really in light of the fact we need clarity, not only on the naming convention and testing, but the interchangeability and clarity around those points. That is the purpose of this study, our hope is that it will serve as a reality check. If there is a way to make sure the industry optimism around biosimilar savings is potentially not that significant unless there is a call to action and clarity around payers working with regulators to adopt policies that prevent additional and unnecessary barriers to market entry. Until that occurs, what we are saying is there are some initial, modest but not typical type of management opportunities that afford the payer to manage the opportunity, like preferred product management for example, to clearly manage the total spend.

Click here to read the full paper from Prime Therapeutics.