Investing in biosimilars
By: Raymond Huml, MS, DVM, RAC; Nigel Rulewski, MD | January 11, 2017
A look at the six challenges companies face when pursuing this potentially lucrative development path.
Biological medicines are revolutionizing healthcare, offering lifesaving treatments, often where none previously exist. Biological medicines have extended the lives of cancer patients, reduced disability for patients with rheumatoid arthritis and provided life-saving replacement proteins for patients with certain rare genetic diseases. However, these medicines are often very expensive, frequently making them unaffordable for patients who might have benefitted from them. But as patents for branded biological medicines approach expiration, biopharma companies are finding new opportunities in developing biosimilars, or more affordable versions of these lifesaving drugs.
The biosimilars field is one of the fastest growing industries globally, largely because many blockbuster biologics will reach patent expiration in the next few years. By the end of 2018, more than 30 innovator biologics with global sales of over $79 billion will have lost patent protection.
Growing numbers of biopharmaceutical companies are eager to take advantage of the opportunity presented by biosimilars, and third party capital providers are anxious to support them. But creating a biosimilar isn’t easy. While it is relatively simple to reverse-engineer a generic version of a small-molecule drug, the complexity of innovator biological products means that it is impossible to reproduce them exactly.
To successful develop a biosimilar and bring it to market takes careful planning and keen understanding the challenges they will face along the way.
As mentioned previously, biologics are created from living organisms, and manufacturers can only approximate the complex proprietary process used by the manufacturers of originator biologics. While the primary amino acid backbone of a biosimilar will be identical to that of the originator, any post-translational modifications can affect the purity, safety and efficacy of the product.
Even minor batch-to-batch variation in biological products or minor changes to existing manufacturing lines must be monitored carefully as it may affect biological activity, safety and immunogenicity. Capital providers also need to consider the suitability of the proposed formulation with regard to potency, stability and compatibility with excipients, diluents and packaging materials.
For these reasons, only a select number of companies have access to the appropriate manufacturing expertise and the Good Manufacturing Practice (GMP) facilities required to produce biosimilars of the standard demanded by regulators. Such expertise must be taken into account when investment decisions are being made.
In the late 1990s, a manufacturing site change of an originator erythropoietin product coupled with a change in the stoppers used for certain containers caused an immune response that dramatically increased the frequency of pure red cell aplasia cases, forcing some patients to need blood transfusions and dialysis. The problem was subsequently resolved, but this salutary lesson is an example of why the European Medicines Agency (EMA), and the US Food and Drug Administration (FDA) established rules for the similarity of both structure and functional activity of biosimilars to those of the innovator/reference product.
The International Conference on Harmonisation of Technical Requirements for Registration of Pharmaceuticals for Human Use (ICH) currently offers a guideline on the comparability assessment required when a sponsor of an approved biologic envisions making manufacturing changes. This guideline can help investors and developers understand the evidence they need to gather to prove that the manufacturing process changes will not have an adverse impact on the quality, safety and efficacy of the drug product. It can also help them calculate the added time and expense that such changes will add to their development lifecycle.
The EMA and FDA have published several guidance documents detailing regulatory expectations and specific biosimilar product testing strategies for manufacturing, quality, nonclinical and clinical efficacy, safety, and immunogenicity comparability assessments. Both FDA and EMA recommend a strategic, stepwise development that should result in a targeted approach to nonclinical and clinical studies on a case-per-case basis. These include the need for comparative human pharmacokinetic (PK) -- and relevant pharmacodynamics (PD) studies if they are available, with the U.S. or EU-licensed reference product; and a crossover design for PK/PD studies of products with a short half-life (i.e. less than five days) and for products with a low immunogenic response.
Investors and developers should note that clinical development requirements for biosimilars are complex and extensive, particularly if a PD marker is not available. A partner with suitable credentials needs to be identified to run the Phase 1 PK/PD work as well as the Phase 3 clinical trials. With more clinical trials being conducted globally, CROs with a global footprint will usually be better placed as partners for the development of biosimilars than smaller CROs.
Due to the potential risks associated with biosimilar development, including the cost of litigation when originator manufacturers fight to protect their franchises, third-party capital providers are proceeding cautiously. This caution is likely to continue in the near term, although as more clinical experience is gained with biosimilars, more originator products come off patent, and more regulatory approvals for biosimilars are granted the perceived risks are likely to diminish. In the interim, most deals have a return structure related to milestones (e.g., regulatory approval or successful completion of a Phase 3 trial), or royalties from the sale of the biosimilar once marketed, to help them manage the commercial risk.
In order to leverage capital to pursue biosimilars programs, investors may focus on dedicated manufacturing capabilities, single products or portfolios of products. If a single source of capital is insufficient for a particular deal, syndication can be considered. It is highly advantageous to partner with a service company with the geographical scope needed to execute all clinically related work (PK/PD and clinical trials) required for regulatory submission. In addition, market exclusivity and interchangeability considerations need to be built into investment models and strategies because these pathways have the potential to change in the future.
With the FDA’s Biologics Price Competition and Innovation Act (BPCI Act) of 2010, the biotechnology industry won its long fight to preserve a lengthy period of exclusivity for innovator products, but this decision may now be in question. New innovator biologics are currently granted 12 years of market exclusivity in the US, whereas small-molecule drugs normally receive only three to five years. However, in an effort to drive prices down, debate continues about reducing the biologic exclusivity period from 12 to seven years – more in line with other countries (e.g., Europe and South Korea provide eight years’ exclusivity; Japan and Canada each provide six years; and Australia provides five).
Another factor to consider is that originator biologic manufacturers are implementing sophisticated lifecycle plans, including filing for new patents to protect their branded products from biosimilar competition. In the U.S., four biosimilar products achieved FDA approval at the time of writing, and all have faced patent challenges that caused their launches to be delayed.
Biosimilar sponsors will need to budget for defense against legal actions by originator companies as their patent protection comes to an end.
Biosimilars are still relatively unfamiliar to physicians, payers and patients, so when these products are launched, biosimilar companies will be forced to market their products using commercial strategies and tactics that closely resemble those for late entrant “me-too” products or branded generics. One key strategy will be naming biosimilar products to distinguish them from competitors. Other strategies include creating meaningful differentiation, price discounts, educating healthcare stakeholders about their safety and efficacy, and creating patient support programs to address reimbursement challenges. These strategies and tactics will require a significant short- and long-term investment to drive market share.
None of these challenges are insurmountable, but biopharma companies and investors need to take the time to do their due diligence and work with strong partners to best position themselves for success.
Many thanks to Melissa Polasek and Karen Lipworth for their contributions.
Vice President, Global Strategic Drug Development and Head of Global Biosimilars Strategic Planning
Recent thinking: From precision game changer to biosimilar survivor
Vice President Strategic Drug Development, Head, Biosimilar Center of Excellence
Recent thinking: From precision game changer to biosimilar survivor