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Posted on 29th June 2017

Biosimilars: The five stages of grief

According to the Swiss psychiatrist Elisabeth Kübler-Ross, grief has five stages: denial, anger, bargaining, depression and acceptance. Although the development of biosimilars should not be an inherently grief-stricken business, it nevertheless appears to be closely following this path, certainly from the perspective of the big pharma companies that mostly dominate the scene today.

The denial stage is easy enough to identify: for many years, big pharma refused to accept that the development of biosimilars was even possible. When the leading generics companies, backed up by the regulators (particularly the EMA) demonstrated that it was, originators moved to anger (manifested by legal action and intensive lobbying efforts) and then swiftly to the bargaining stage (developing their own biosimilars while trying to influence the approvals procedure in a way that benefits themselves), where they remain today.

This phase of the emotional journey has been characterised by a swift transition of the biosimilar industry from vision to reality. The EMA has now approved 11 products (excluding duplicates), including four biosimilar monoclonal antibodies, while the FDA has given the green light to four biosimilars, of which three are antibodies. Multiple other applications are in the registration process. And in the market place, while uptake of biosimilars still remains very erratic in Europe, the first antibody products have done far better to date than many imagined. In countries with centralised tendering, biosimilar infliximab (the longest-established monoclonal) accounts for close to 100% of sales and even in locations that have traditionally been hard for generics to crack, such as France, it now dominates hospital use (the retail market will remain a largely no-go area until the government finally makes biosimilars interchangeable). In the US, with its much more fragmented buyer universe and far stronger defensive action by the innovators (which make the vast majority of their sales and profits in this market and hence have far more to lose here than they do in Europe) uptake is slower, but the endpoint is clear: biosimilars will either replace innovator product or, at the least, force them to cut their prices significantly in order to maintain their market share.

So far, the big pharma companies developing biosimilars, principally Pfizer (mainly through Hospira, which has a tie-up with Celltrion), Amgen and Biogen (via its partnership with Samsung). have focused shareholder attention on their success in getting products to market and not on the sales that they have achieved thereafter. This is fair enough, given that these are extremely early days and that penetration rates for biosimilars are expected to take years to build in many countries, particularly in the US. Moreover it can also be argued that it is not entirely in the interest of these companies to encourage payer regimes that drive very high levels of biosimilar uptake, since most of them have innovative biologics of their own that they need to defend. In this regard, even Sandoz, the pioneer of biosimilars and by far the most successful of all the generic companies, is slightly compromised, since its parent company, Novartis, has quite a number of innovative antibodies in development. In addition, the inevitable trade-off between volume and price, combined with the huge expenditure that all these companies have made to get their products to market, means that their initial target is to hold margins up and generate the cash needed to recoup their investments.

In the medium term, however, we expect to see the start of the depression stage. This is likely to be characterised by the approval of multiple versions of the same biosimilar, leading to much more intensive price competition as the latecomers seek volume. Regulatory shifts that make the playing field for biosimilars more level in the US (for instance, a more realistic approach by the FDA on interchangeability and alterations to the way in which hospital drugs are paid for) will provide impetus for the commodification of the market. The NOR-SWITCH study that was carried out in Europe, demonstrating that there were no ill-effects for patients moved between Remicade and biosimilar infliximab, is likely to be the first of many such studies and these should eventually convince clinicians (and payers) that there is no clinical difference between biosimilars and their reference products. This, in turn, should lead to more European governments making biosimilars substitutable, which would improve uptake dramatically in some countries.

Lower prices and more companies fighting for the same space (particularly since all the monoclonals that treat the same indication, RA for instance, effectively compete for the same patient pool and hence a biosimilar to one can affect the sales of all) will inevitably mean that the sales of individual biosimilar brands will peak and then decline, just as generics do. This is not the sort of trend that the innovators are used to, nor what they have led investors to expect, so if it becomes apparent that peak sales of biosimilars are likely to fall short of expectations (which can hardly fail to happen given that most companies appear to have assumed that they will face only limited competition), dissatisfaction will surely follow.

The acceptance stage involves companies realising that biosimilars are effectively going to be generics, albeit expensive ones. At this point, we expect most big pharma companies to lose interest, either selling their current portfolios or at the least, not putting further cash into R&D. Merck KGaA already appears to have reached this stage, recently agreeing to dispose of its development pipeline (including a version of adalimumab that is currently in phase III trials) to Fresenius, for €170m in cash and a possible €500m in milestones.

Fresenius is a generic company, of course, and we would expect other generics firms to pick up big pharma assets over time, shifting the balance of supply away from the innovators. For the generics industry, biosimilars are somewhat less likely to end in tears, as even generic-like biosimilars still offer better margins and a longer profitable lifetime than most small molecule drugs. The challenge is to fund their development, but with luck, big pharma’s loss will be generics’ gain.

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