After James Wilson Marshall discovered a certain shiny metal in the America River in California, he later recalled that his discovery “made my heart thump, for I was certain it was gold.” It was 1848, the year before the gold rush began. By the end of 1849, California’s population had grown to 100,000, nearly 80,000 more than the end of the prior year. It was all for gold.
The biologics market has grown exponentially over the last several years. These products represented more than $150 billion in global sales in 2013 and are projected to generate $290 billion and make up 27 percent of the pharmaceutical market by 2020.1 This, along with the increasing worldwide focus on improving health care access and costs, presents an attractive opportunity for biosimilar – or follow-on biologic – manufacturers. Analysts expect the worldwide biosimilars market to reach $25 to $35 billion by 2020. Since the first biosimilar approval in EU in 2006, there are now more than 700 biosimilars approved or in the pipeline globally.2
But do industry players currently view it as a possible gold rush, or a misguided hunt for fool’s gold? While it may not be as easy to mine as gold was in California back in the mid-19th century, there’s little question in my mind that the biosimilars market could be a prospective gold mine for major pharma companies, generics manufacturers, and even smaller drug producers. There could be potential for this market to make an enormous impact in the development, manufacturing, and marketing of complex medicines for years to come.
However, health care and life sciences organizations must tackle a series of critical assessments before determining how quickly they rush to the scene. While many believe that biosimilars hold exciting promise for drug manufacturers, their leaders should consider the answers to five key questions before they proceed and expect to achieve that promise.
Can the business afford it? Certainly the largest pharma companies may be best positioned by virtue of the fact they have higher revenue, greater resources, existing manufacturing capacity, and broader research and development capabilities to facilitate including biosimilars as a core part of their business model and organizational strategy. This may yield a competitive advantage for branded drug manufacturers that have enough capital and the ability to build to scale. It may also prove to be an opportunity for a number of smaller manufacturers that have the ability to scale up sufficiently to become profitable. But there may be a number of companies that simply won’t have the financial wherewithal to compete.
What are the state and federal legislative mandates that may determine the growth and expansion of this new sector? Predicting future regulatory pressures is a tough business. Biosimilars are, after all, not an exact match. They involve living tissue, not small molecule generics that can be easily applied. Interchangeability is a key consideration. In more than a dozen states, products cannot be switched unless they are classified as interchangeable. That means additional clinical trials and higher expenses. For companies working to launch new products, the process can be slowed, if not made prohibitive altogether.
What is the organizational appetite for investment? At a time of industry change and contraction driven by evolving marketplace demands, will biopharma companies be as aggressive in devoting financial resources to an emerging segment of the market that requires substantial investment and carries additional risks? The approach may differ by organization: generic manufacturers may need to acquire capabilities, while biologic innovators may have to overlay this new business onto their current portfolio.
What kind of pricing structure needs to be put in place? How do organizations create enough margin to maintain a pricing model that will make the investment worthwhile? While branded pharma companies might view this as a challenge, it’s not an insurmountable one. However, many smaller companies facing smaller margins – even those that have demonstrated success with generics – may find this demanding and dynamic new market more difficult.
Will we experience the level of consumer discounts long associated with the growth of generic drugs? The short answer is probably not. Generic products have generated remarkable savings for consumers over the years. But generics and biosimilars are not an apples-to-apples comparison.
Consumers have become used to generic cost reductions in the neighborhood of 80-90 percent. Given the complexities of manufacturing and regulatory hurdles for biosimilars, the cost savings for consumers using biosimilars will probably fall in the 30-percent range, at least in the short term. Will consumers opt for a biosimilar treatment if it is not significantly cheaper than the reference product?
Once all of these questions have been addressed, one overarching question still remains: Is the risk worth it? By 1850, merely two years after the beginning of the gold rush, most of the surface gold in California had disappeared. Miners continued to flock to the area, but they faced difficult and dangerous conditions.
Making the strategic decision to compete in the biosimilars market is riskier than generics. But it could have enormous upside. For industry players, sitting on the sidelines may not be wise. Organizations can use scenario planning to determine what products may succeed in the marketplace, what products may not, and how best to invest strategically.
For those determined to push ahead after weighing these five critical questions, they could end up capturing a significant share of the estimated tens, even hundreds, of billions in biosimilar-generated revenue over the next decade. That could be the gold that makes it worthwhile for companies to invest.
1 IMS Health, 2013
2 BioWorld, 2014