Biosimilars and China
by Frank H. Eeckman, MD, PhD and Richard Daverman, PhD
ChinaBio Today
It Seems like a Natural Combination, But Will It Happen? And Where?
Biosimilars are the closest thing that the biotech world has to generic drugs. However, because biotech drugs are grown in cultures, rather than constructed out of chemicals like traditional pharma drugs, it is impossible to have a generic version of a biotech drug that is an exact reproduction of the original. This makes biosimilars difficult. But biotech drugs are the most expensive drugs in the world, which makes generic versions of these famous medications very attractive.
At the moment, this is a dilemma. We know it will be solved, someday. We just don’t know how.
Because Asian drug centers, especially China and India, are known as low-cost havens of drug development, they are natural locations for developing these biosimilar drugs. Indeed, 3SBio (SSRX), the Chinese drug company that recently listed on the Nasdaq exchange (see story), is in the business of producing a version of Amgen’s (AMGN) EPO for the domestic Chinese market. Amgen never patented EPO in China – it probably figured “What’s the point?” since Chinese IP laws were so weak at the time. This left 3SBio free to go ahead and make its own version of the drug to a population that, while huge, did not have much free cash to spend on a fairly esoteric drug. After all, the point of EPO is to lessen the effects of anemia in patients undergoing chemotherapy and dialysis, but the drug did nothing to cure the underlying cancer or kidney failure.
The patent protection on EPO and other early biotech drugs is running out. In fact, the patent on another Amgen biotech drug, Enbrel, expires in 2009. If these drugs were conventional medications, like Lipitor from Pfizer (PFE), financial analysts would be climbing over each other to produce charts showing the rate at which Amgen’s revenues would fall in the coming years. Amgen has its own set of problems with EPO -- a well-documented story -- but the company remains much better off with its current difficulties than it would be if it faced imminent generic competitionJ.
The reason that Amgen is off the hook on the patent expiration issue is that the FDA does not know how to devise a fair set of standards for approving biosimilars. Actually making one is fairly simple, despite the mystery in which biotech companies wrap their creations. Biotech companies obviously have a huge amount of self-interest in these rules. They believe that a biosimilar drug should, for the safety of the public, undergo a set of trials just as rigorous as the original. After all, they argue, the biosimilar drug is not the same, it is only similar. Small differences can make a life-and-death alteration. Safety is the goal, and all that. In all of this high-minded talk, no mention is ever made of the tremendous sums of money involved.
Consumers, tired of paying the enormous cost of these biotech drugs, argue for something less rigorous. The FDA, not sure what to do, stalls for time. In fact, the FDA dithered for so long over the first application for a biosimilar, a US court told them to get moving. That initial application was for a human growth factor drug, Omnitrope from the Sandoz unit of Novartis (NVS). As the first biotech drug to win approval, the biosimilar drug could be approved under exceptional rules that will not apply to other biotech generics. But even at that, the FDA did not want to issue a definitive opinion, fearing that ruling, even though applicable only in a single case, would be establishing a pathway for approving other biosimilars in the future.
That where the situation sits. There is precious little outrage from the public at large because the patents have not yet expired, so the public is not yet being prevented from enjoying cheaper drug prices. But as the expirations approach, the ambient noise about the issue will increase.
If the biotech industry gets its way, trials for biosimilars will approach the intensity of a full-fledged approval. This will drive the cost up somewhat and create long delays, but biotech and its industry organization, BIO, have a fair amount of political power. They will do what they can to protect their blockbuster drugs.
The Biotech Blockbuster Model
Biotech drugs, it should be noted, are billion dollar sellers because of their high prices. While that sounds like a truism, it is a different model than used for most of the pharma blockbusters. For example, the world’s biggest selling drug, Lipitor, is taken by the masses and the cost per patient is relatively low.
This is not true for EPO and the biotech drugs that address cancer. Since biologics need to be injected, they will be taken only by people who are seriously ill. Biologics target these particular markets for other reasons as well, including concentrated delivery to relatively small physician base, in markets like rheumatoid arthritis, Crohn's disease, cancer, etc.
There are never enough people suffering from these diseases to make a traditional blockbuster drug such as Lipitor. Traditional pharma blockbusters exist because a huge fringe of healthy people with minor ailments and complaints, or borerline reading on diagnostic tests take drugs aimed at a serious illness. That happens in acid reflux, asthma, hypertension, high cholesterol, arthritis and minor pain, etc. where the fringe is many times bigger than the core. And those are the markets addressed by traditional blockbusters.
So to get a blockbuster in biologics, the drug needs to be sold for a lot of money. That is why Genentech’s (DNA) and ImClone's (IMCL) prices are so expensive. Maybe overseas companies will be happy with smaller-revenue drugs, but a rigorous approval process would seriously eat into their margins and could make the whole field unappetizing to all but a few companies.
India versus China
Both India and China are well set up to take on this challenge, though India leads in having larger companies, like Dr. Reddy’s, in a position to take on the formidable challenge of US FDA trials. India’s Ranbaxy and Dr. Reddy’s have extensive experience dealing with FDA and EMEA. China’s biotech industry, on the other hand, is highly dispersed with no large companies in the mix. Companies seem to be partnering up, particularly drug makers with distribution firms, but they remain a long way from having any real powerhouses. 3SBio, for example, made less than $12 million on its version of EPO last year.
India may also have a small advantage in terms of infrastructure. But infrastructure and cost confer only a small edge, one that, when all is said and done, doesn’t matter all that much. After all, to make a biologic drug, one does not need to have a huge facility to produce the drugs. A few bioreactor vessels are all that is required. And the lower cost structure of drug development in Asia is not as big an advantage as it might seem, because the cost of goods is a minuscule fraction of sales prices for biologics – as is true for most medications.
Although nobody wants to talk much about margins, the consensus is that margins in the pharma industry run higher than 90% and some say higher than 95%. There have been some arguments made that biologics are different, but the financial reports don’t seem to bear this out.
The Future
We think the FDA will be forced to allow biosimilars in the near future. However, they are likely to be under tremendous pressure from the industry and that will result in an approval program that is somewhere in between a new drug approval and a generic approval, but very much closer to the former than to the latter. That means safety studies, clinical trials, etc. And that means extra costs and time in an area where your advantage is small.
One of the new factors that China will have to overcome is a fear engendered by quality lapses in non-drug areas. The pet food scare may have damaged China more than seems apparent at first blush. What will happen when China introduces a new drug that invades an American biotech’s turf? The commercials could be ugly. The close-on-its-heels toothpaste scare only reinforces the problem.
The key advantage China has is that they have a huge home market, including access to Asia, a market that is limited by how much people can afford to pay. But even at relatively low prices (extremely low prices when compared to the US), 3SBio is able to make the same 90% margins on its version of EPO. Given the size of the US market, Chinese companies like 3SBio will find the money (from outside its own treasury? with a US partner?) to produce the drug.
In short, Amgen, Biogen, and other biotechs with aging patents are very fortunate that the FDA is dragging its feet on the regulatory pathway for biosimilar biotech drugs. The lack of a pathway is the only real impediment to cheaper versions of drugs that will soon be off patent. In the normal world, Amgen would be in a world of financial trouble, because all of its products are about to lose IP protection and generic competition would trash its sales. Once the FDA defines the pathway to approval, the race will be on and companies from Asia will be joining the field.
RELATED READING:
- China's Recent Chanes in Health Policy a Pre-Olympics Tactic
ChinaBioToday.com is a contributor to BioHealth Investor.com
_________________
ChinaBio Today
It Seems like a Natural Combination, But Will It Happen? And Where?
Biosimilars are the closest thing that the biotech world has to generic drugs. However, because biotech drugs are grown in cultures, rather than constructed out of chemicals like traditional pharma drugs, it is impossible to have a generic version of a biotech drug that is an exact reproduction of the original. This makes biosimilars difficult. But biotech drugs are the most expensive drugs in the world, which makes generic versions of these famous medications very attractive.
At the moment, this is a dilemma. We know it will be solved, someday. We just don’t know how.
Because Asian drug centers, especially China and India, are known as low-cost havens of drug development, they are natural locations for developing these biosimilar drugs. Indeed, 3SBio (SSRX), the Chinese drug company that recently listed on the Nasdaq exchange (see story), is in the business of producing a version of Amgen’s (AMGN) EPO for the domestic Chinese market. Amgen never patented EPO in China – it probably figured “What’s the point?” since Chinese IP laws were so weak at the time. This left 3SBio free to go ahead and make its own version of the drug to a population that, while huge, did not have much free cash to spend on a fairly esoteric drug. After all, the point of EPO is to lessen the effects of anemia in patients undergoing chemotherapy and dialysis, but the drug did nothing to cure the underlying cancer or kidney failure.
The patent protection on EPO and other early biotech drugs is running out. In fact, the patent on another Amgen biotech drug, Enbrel, expires in 2009. If these drugs were conventional medications, like Lipitor from Pfizer (PFE), financial analysts would be climbing over each other to produce charts showing the rate at which Amgen’s revenues would fall in the coming years. Amgen has its own set of problems with EPO -- a well-documented story -- but the company remains much better off with its current difficulties than it would be if it faced imminent generic competitionJ.
The reason that Amgen is off the hook on the patent expiration issue is that the FDA does not know how to devise a fair set of standards for approving biosimilars. Actually making one is fairly simple, despite the mystery in which biotech companies wrap their creations. Biotech companies obviously have a huge amount of self-interest in these rules. They believe that a biosimilar drug should, for the safety of the public, undergo a set of trials just as rigorous as the original. After all, they argue, the biosimilar drug is not the same, it is only similar. Small differences can make a life-and-death alteration. Safety is the goal, and all that. In all of this high-minded talk, no mention is ever made of the tremendous sums of money involved.
Consumers, tired of paying the enormous cost of these biotech drugs, argue for something less rigorous. The FDA, not sure what to do, stalls for time. In fact, the FDA dithered for so long over the first application for a biosimilar, a US court told them to get moving. That initial application was for a human growth factor drug, Omnitrope from the Sandoz unit of Novartis (NVS). As the first biotech drug to win approval, the biosimilar drug could be approved under exceptional rules that will not apply to other biotech generics. But even at that, the FDA did not want to issue a definitive opinion, fearing that ruling, even though applicable only in a single case, would be establishing a pathway for approving other biosimilars in the future.
That where the situation sits. There is precious little outrage from the public at large because the patents have not yet expired, so the public is not yet being prevented from enjoying cheaper drug prices. But as the expirations approach, the ambient noise about the issue will increase.
If the biotech industry gets its way, trials for biosimilars will approach the intensity of a full-fledged approval. This will drive the cost up somewhat and create long delays, but biotech and its industry organization, BIO, have a fair amount of political power. They will do what they can to protect their blockbuster drugs.
The Biotech Blockbuster Model
Biotech drugs, it should be noted, are billion dollar sellers because of their high prices. While that sounds like a truism, it is a different model than used for most of the pharma blockbusters. For example, the world’s biggest selling drug, Lipitor, is taken by the masses and the cost per patient is relatively low.
This is not true for EPO and the biotech drugs that address cancer. Since biologics need to be injected, they will be taken only by people who are seriously ill. Biologics target these particular markets for other reasons as well, including concentrated delivery to relatively small physician base, in markets like rheumatoid arthritis, Crohn's disease, cancer, etc.
There are never enough people suffering from these diseases to make a traditional blockbuster drug such as Lipitor. Traditional pharma blockbusters exist because a huge fringe of healthy people with minor ailments and complaints, or borerline reading on diagnostic tests take drugs aimed at a serious illness. That happens in acid reflux, asthma, hypertension, high cholesterol, arthritis and minor pain, etc. where the fringe is many times bigger than the core. And those are the markets addressed by traditional blockbusters.
So to get a blockbuster in biologics, the drug needs to be sold for a lot of money. That is why Genentech’s (DNA) and ImClone's (IMCL) prices are so expensive. Maybe overseas companies will be happy with smaller-revenue drugs, but a rigorous approval process would seriously eat into their margins and could make the whole field unappetizing to all but a few companies.
India versus China
Both India and China are well set up to take on this challenge, though India leads in having larger companies, like Dr. Reddy’s, in a position to take on the formidable challenge of US FDA trials. India’s Ranbaxy and Dr. Reddy’s have extensive experience dealing with FDA and EMEA. China’s biotech industry, on the other hand, is highly dispersed with no large companies in the mix. Companies seem to be partnering up, particularly drug makers with distribution firms, but they remain a long way from having any real powerhouses. 3SBio, for example, made less than $12 million on its version of EPO last year.
India may also have a small advantage in terms of infrastructure. But infrastructure and cost confer only a small edge, one that, when all is said and done, doesn’t matter all that much. After all, to make a biologic drug, one does not need to have a huge facility to produce the drugs. A few bioreactor vessels are all that is required. And the lower cost structure of drug development in Asia is not as big an advantage as it might seem, because the cost of goods is a minuscule fraction of sales prices for biologics – as is true for most medications.
Although nobody wants to talk much about margins, the consensus is that margins in the pharma industry run higher than 90% and some say higher than 95%. There have been some arguments made that biologics are different, but the financial reports don’t seem to bear this out.
The Future
We think the FDA will be forced to allow biosimilars in the near future. However, they are likely to be under tremendous pressure from the industry and that will result in an approval program that is somewhere in between a new drug approval and a generic approval, but very much closer to the former than to the latter. That means safety studies, clinical trials, etc. And that means extra costs and time in an area where your advantage is small.
One of the new factors that China will have to overcome is a fear engendered by quality lapses in non-drug areas. The pet food scare may have damaged China more than seems apparent at first blush. What will happen when China introduces a new drug that invades an American biotech’s turf? The commercials could be ugly. The close-on-its-heels toothpaste scare only reinforces the problem.
The key advantage China has is that they have a huge home market, including access to Asia, a market that is limited by how much people can afford to pay. But even at relatively low prices (extremely low prices when compared to the US), 3SBio is able to make the same 90% margins on its version of EPO. Given the size of the US market, Chinese companies like 3SBio will find the money (from outside its own treasury? with a US partner?) to produce the drug.
In short, Amgen, Biogen, and other biotechs with aging patents are very fortunate that the FDA is dragging its feet on the regulatory pathway for biosimilar biotech drugs. The lack of a pathway is the only real impediment to cheaper versions of drugs that will soon be off patent. In the normal world, Amgen would be in a world of financial trouble, because all of its products are about to lose IP protection and generic competition would trash its sales. Once the FDA defines the pathway to approval, the race will be on and companies from Asia will be joining the field.
RELATED READING:
- China's Recent Chanes in Health Policy a Pre-Olympics Tactic
ChinaBioToday.com is a contributor to BioHealth Investor.com
_________________
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