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Wave Of Biosimilars Set To Roil Pharma

When the FDA last month approved the first biosimilar drug, the U.S. took its first step into a lucrative but potentially disruptive field of medicine.

Pfizer (PFE), which is moving big into biosimilars with its $17 billion Hospira (HSP) acquisition, has estimated that global biosimilar sales could hit $17 billion to $20 billion per year by 2020. Sales are just $1 billion yearly now, mainly in the European Union.

With the March 5 approval of Zarxio, Novartis' (NVS) biosimilar version of Amgen's (AMGN) aging blockbuster Neupogen, the U.S. market cracked open.

"As the FDA becomes more comfortable ... we're going to see biosimilars get through a lot more easily," predicted Jitendra Malik, an attorney with Alston & Bird who specializes in intellectual-property and drug-approval issues. "The first one's always the hardest to get through, because the FDA is more cautious — it's uncharted territory.

For years, the biotech revolution not only brought life-saving new medicines, but also profit-saving protections against competitors. While traditional pharmaceuticals can be assembled by machines from different chemical ingredients, biologic drugs are formed by biological processes, like a high-tech version of fermentation. Many of these processes are trade secrets that, unlike patents, have no expiration date.

Reverse Engineering

As more companies became familiar with biotech manufacturing, however, they were able to reverse-engineer the process to create biosimilar drugs — not identical to the originals, but close enough. Novartis' Sandoz unit, historically devoted to traditional generic drugs, has been a pioneer in the field, already selling biosimilar versions of Neupogen and its sister drug Epogen in Europe.

Many others are lined up at the U.S. border with their own products. Hospira and Teva Pharmaceutical (TEVA) have launched their own versions of Neupogen in Europe. Some companies are working on biosimilar versions of AbbVie's (ABBV) blockbuster immunology drug Humira, including Sandoz, Hospira, Pfizer (prior to acquiring Hospira), Amgen and German pharma giant Boehringer Ingelheim.

When AbbVie announced its richly priced acquisition of Pharmacyclics (PCYC) in March, some analysts figured it was driven by the need for another blockbuster in the face of Humira competitors.

Key Biologics Face Rivals

Other drugs with biosimilar versions in late-stage testing include Biogen's (BIIB) cancer drug Rituxan, Roche's (RHHBY) breast-cancer treatment Herceptin, and Johnson & Johnson's (JNJ) Remicade. And Merck (MRK) is developing a biosimilar version of Sanofi's (SNY) popular diabetes drug Lantus.

Hospira's biosimilar version of Remicade already has been approved in Europe and was expected to be OK'd in the U.S. in Q1. But in February, the FDA delayed its advisory-panel meeting on the product "due to information requests pending with the sponsor of the application.

Analysts are closely watching the biosimilar's rollout in Europe. Remicade is approved for a variety of ailments, from psoriasis to inflammatory bowel disease (IBD) to rheumatoid arthritis, and will provide a test case for how willing the different specialists are to use the knockoff without independent studies.

"B(iosimilar)-Remicade was approved without gastroenterology studies, which account for 50% of Remicade sales," wrote Leerink analyst Jason Gerberry in a December research report. "Some gastroenterology specialists we've spoken with do not plan to use b-Remicade for IBD indications until clinical studies report out in late 2015 or 2016.

In Europe, biosimilar versions of Neupogen have taken about 30% of the market. Analysts generally expect the same for the U.S., but much depends on where the drugs are priced.

Generic pharmaceuticals generally go for a fraction of the original drug's price, driving the retail value down so much that the original developers stop marketing the products (though they do keep manufacturing them). Biosimilars are more difficult and expensive to develop, so there are fewer players and less pricing competition.

Novartis still hasn't launched Zarxio and is keeping mum about its price. Company spokeswoman Geena Wardaki told Investor's Business Daily in an email, "For biosimilars in general, we typically expect discounts to be in the range of 10% to 30% below the reference biologic. However, this depends on therapeutic area, market, channel, number of competitors and reimbursement situation.

CMS Vs. FDA On Biosimilars

On Tuesday, the Center for Medicare & Medicaid Services (CMS) announced that physicians prescribing Medicare Part B drugs would be reimbursed for biosimilars in the same way as for the original drugs — average selling price plus 6%. Pharmacies dispensing part D drugs can exclude the original from their lists of preferred drugs in favor of the biosimilar if they wish, so long as they provide a transitional supply of the original for patients already taking it.

That implies that CMS is treating biosimilars as effectively interchangeable with the originals, further muddying an issue that's already unclear. The FDA ruled that although Zarxio can be used for all five of the uses approved for Neupogen — boosting blood cells in various kinds of cancer patients — it's not technically interchangeable. That means that if a doctor prescribes the original drug, a pharmacy can't fill it with the biosimilar.

That doesn't matter so much for Zarxio, since the drug is administered via hospitals and clinics rather than retail pharmacies. Nonetheless, some drugmakers might find it worthwhile to file separately for an interchangeability approval, which will likely involve studies of patients switching between products, say experts in the matter.

"That would be a deterrent to a second person coming in," said Malik. "If I can show that my product is interchangeable, that doesn't necessarily mean that another applicant down the road can do the same thing just by piggybacking on me. In a lot of cases, the structure (of the original drug) is not perfectly known, and you do have to spend time convincing people that it's the same.

Yet another question is how aggressive the payers and pharmacy benefit managers (PBMs) will be in pushing biosimilars ahead of the original drugs to save costs. In a March 29 report, analyst Gerberry wrote that two unnamed "payer specialists" had told him that payers will probably leave a grace period of six to 12 months for doctors to get used to biosimilars, but then start to lean harder.

"Specialists expect policies to grandfather stable patients receiving anti-TNF therapy (e.g., Remicade) at same reimbursement, but new patients or new switches would likely be required to go through a prior authorization requiring patients use biosimilar first," he wrote.

Gillian Woollett, senior vice president at the consulting firm Avalere Health, says another issue is naming. When a company develops a new drug, it gets a generic (also called nonproprietary) name and a brand name, and the generic name (filgrastim, in the case of Neupogen) is used by all generic drugmakers when the patents expire.

What's In A Name?

Many biologics approved by the FDA, even when they have never been compared, also share nonproprietary names because this is simply the name of the active ingredient and not the name of the product. Biosimilars in most other markets share the nonproprietary name of their reference product too, but in the U.S., with the first approval, the FDA assigned makers a "placeholder nonproprietary name," in this case filgrastim-sndz.

"The naming thing is an important space to watch," Woollett told Investor's Business Daily. "I think these are all going to be branded products, and all biosimilars, like most originator biologics, will have brand names — again, the generic-drug situation is totally different, as most generics do not have brand names."