By 2015, sales of biosimilars are expected to reach between US$1.9-2.6 billion, up from US$378 million for the year to the first half of 2011. Potentially, this market could be the single fastest-growing biologics sector in the next five years – albeit from a small base – spurred by the convergence of major dynamics that will see new biosimilars enter the US market by 2014, bring additional molecules to Europe through 2015, and open up oncology and autoimmune disease areas to biosimilars for the first time ever.

Cost pressures key
The changing outlook for biosimilars comes at a time when the global pharmaceutical market is feeling the combined impact of two key events: a period of unprecedented patent expirations on many of the world’s largest pharmaceutical brands, and a financial crisis that has required healthcare systems to make significant and sustained cost reductions.

For payers in the advanced markets, limited economic growth and pressures on healthcare make the patent cliff a true generic dividend, enabling much needed savings to be realized. However, as potential savings from generics start  to decline in these countries over the next 5-10 years while the imperative to reduce expenditure continues to grow, payers face an urgent need to find new ways of rationalizing resources. Biologics – among the most expensive pharmacotherapies available and now approaching their own swathe of patent expirations – potentially represent the most lucrative source of savings on drug expenditure for Western nations after 2015. Biosimilars may be the key that helps them to realize this opportunity.

Biosimilars also bring clear potential for payers in the emerging pharmaceutical or “pharmerging” markets, such as Brazil, India and China. Here, the need to broaden healthcare coverage to large populations increasingly must be balanced against limited budgets and growing demand for innovative drugs. Biosimilars offer one way of widening access and enabling better value to be obtained from the money spent on healthcare. In some cases (such as South Korea, India and Brazil) they are seen as a key macroeconomic driver of growth, attracting foreign capital by creating manufacturing and R&D centers of excellence.

Growing demand for biologics
The imperative to find cost-effective alternatives to biologics reflects the growing demand for these specialty drugs. Since their origins in the 1980s, biologics have prospered into a US$138 billion market (2010), fuelled by such key launches as recombinant insulins, human growth hormone (HGH), alteplase, erythropoietins (EPOs), granulocyte colony stimulating factors (G-CSFs) and then monoclonal antibodies (MAbs), among others. Currently accounting for 16% of global pharmaceutical expenditure and significantly outpacing total branded sales, biologics will continue to out-perform the global market as more innovative products deliver new treatment options for a growing range of indications.

Patent expiries driving new potential
A number of top-selling biologic brands, including Herceptin, Enbrel, Humalog, MabThera, Remicade and Aranesp, are due to lose product patent protection over the next five years, opening up a wealth of new possibilities for biosimilars players. Key therapy areas such as cancer, diabetes and rheumatoid arthritis (RA) will spearhead this new wave of biosimilars, with attention focused on the real prizes of anti-TNF MAbs, MAbs for oncology, and insulins.

Diverse competitive landscape
A diversified competitive arena for biosimilars is already emerging, with generics manufacturers, R&D-based pharma, and biotech companies poised to compete: Teva is approaching the end of Phase II trials for a biosimilar version of Roche’s rituximab (MabThera/Rituxan);1 Pfizer recently signed a deal with Biocon (India) to manufacture biosimilar insulins;2 AstraZeneca and Eli Lilly have both signaled intentions in this area;3 Boehringer Ingelheim is creating a dedicated division for developing and commercializing its own biosimilars;4 and a Merck&Co deal with CRO Parexel is expected to yield five late-stage biosimilars by 2012 .

Plans to develop biosimilars are also being mooted by leading innovator biotech companies, including Biogen Idec and Amgen – which has particularly called-out emerging markets in South America and Asia.6 Interest in the sector has even extended beyond the realms of pharma: digital technology leader Fujifilm and electronics giant Samsung have both now joined the race, securing biosimilar deals with Merck and Quintiles respectively. Samsung is planning to pursue further biotech ventures in its effort to achieve target revenues of US$1.8 billion from biopharmaceuticals by 2020.

The entry of these players may not necessarily herald similar actions from more companies in other industries, but it does bring a fresh inflow of cash to fund development programs and atypical branding models that have already paid off in other industries. The commitment is clearly there, but how and where will the promise be fulfilled?

Defining the market
The biosimilars sector has reached very different stages of evolution around the world. Clarity of guidelines is variable and regulatory pathways diverse, leading to various definitions of biosimilars (or the broader group of follow-on biologics) across countries and regions. Europe has by far the best-established framework, with which the US is now more or less aligned.

Outside these markets, definitions of agents and pathways to approval are less precise. It is clear that follow-on or modified biologics already exist in China and India as well as in other countries. Some of these agents would fit the definition of existing biosimilars well; many are essentially copy versions of patented agents; others fail to meet either categorization, yet clearly are not original. For instance, Reditux, a copy of rituximab manufactured by Dr Reddy’s, has been available in India since 2007, but its approval has been based on a smaller body of evidence than is likely to be required in Europe or the US. To enable consistent analysis across geographies, therapies and manufacturers, IMS has established an industry-verified standard market definition for the biosimilars sector. This classifies biosimilars (also known as follow on biologics in the US and subsequent entry biologics in Canada) as biologic products approved in a country which has an abbreviated approval process for biologic products that references an originator biologic in the regulatory submission. Products marketed in countries without a biosimilar approval pathway and for which the originator has not granted a license are not considered true biosimilars.

A tale of three geographies
Geographically, the market for biologics and biosimilars falls into three distinct clusters: the US, the other advanced economies (Europe, Japan and Canada) and the pharmerging markets. The US accounts for most of the global spending on biologics and will be a key driver of long-term biosimilars market potential. The advanced economies have the advantage of an established framework for biosimilars but to date uptake has been slow; Europe is the most progressive. Some of the highest growth rates for biologics are currently seen in the pharmerging markets, where biosimilars already exist (albeit through a looser regulatory pathway) and where much of the immediate growth will be found.

In Japan, biosimilars guidelines have been recently established and follow the principles of the EU Framework; biosimilar epoietin alfa has taken over a quarter of the market by volume in a period of 12 months, but somatropin has done less well.

US: The big opportunity
Devoid of a specific regulatory pathway, the US currently has no established industry for biosimilars. At present, there is only one product on the market that could potentially fit this description – Omnitrope (somatropin/ HGH) which was launched by Sandoz in 2007 under a special ruling. However, all this is set to change in 2014 when the country’s new framework for biosimilars, set out by The Patient Protection and Affordable Care Act of March 2010, comes into effect. With leading manufacturers including Pfizer and Merck already positioned to compete, and patients and health insurers stepping up the pressure for access to low-cost, high-value drugs, the US is forecast to be the single biggest opportunity for biosimilars by 2020. Whether this opportunity is realized is therefore the most important differentiator between success and failure for biosimilars in the next decade.

Significant potential – over time
Notwithstanding the significant potential for biosimilars in the US, their establishment in this market will be a slow process: stringent clinical requirements and an involved, potentially drawn out procedure for resolving patent disputes are likely to delay the speed of uptake in the near future: behind every product patent there are several potential lines of defense for originator companies, including process patents, which may slow the entry of biosimilar versions when new markets open. Given the highly technical issues involved and lack of legal precedent to date, predictions are difficult to make and questions remain as to whether biosimilar versions of the more complex biologics (MAbs) will reach the US market before 2015.

It will also take time for the FDA and payers to build a learning curve on biosimilars and for physicians to overcome their concerns over safety and preferentially adopt these products: they will have to believe in the ability to technically, safely and consistently reproduce these molecules. The financial motivation for both payers and patients will also be crucial. However, even if technology regulatory barriers do hinder biosimilars take-off in the US until 2015, the financial incentives - for both public and private stakeholders - will ultimately drive uptake longterm, with the entry of leading US companies fostering credibility of the sector.

Europe: The first market
The EU presents the most advanced market for biosimilars, accounting for 80% of global spending on these molecules. However, despite a strong legislative foundation, to date only a few manufacturers have launched biosimilars in the region. These include a mixture of existing generics houses, the generics arms of major companies and new ventures, most notably Sandoz/Novartis, Stada, Hospira, Medice and Ratiopharma (Teva). Biosimilars are established in three therapy areas in Europe: EPOs for treating anemia caused by renal dialysis, G-CSFs for lowered white blood cell counts after chemotherapy, and HGH.

Varied penetration
The penetration of biosimilars varies by country, reflecting local pricing and reimbursement policies, stakeholder influence, and attitudes towards their adoption and use. Currently, Germany and France account for half the  biosimilars market by value in the region with a 34% and 17% share respectively across Europe, although uptake in Spain and the UK has started to increase.  Across markets, G-CSFs have generally achieved the highest penetration by value and HGH the lowest (25% and 4% class uptake respectively). The lower penetration of HGH has been largely driven by the greater element of patient choice and discrimination over devices and convenience. Original brand Genotropin, for example, is available in a form which does not require refrigeration, whereas this is a prerequisite for the biosimilar version. Cautious prescribing has also played a role, with physicians hesitant to use biosimilar HGH given the time it takes to show an effect: with G-CSFs, the impact of treatment is more readily apparent, enabling physicians to change course in a faster time frame if required. In the case of EPOs, uptake is more driven by payer than patient concerns, given the lack of any discernible difference in the patient experience as a result of switching to a biosimilar.

Uptake also varies across countries when therapy areas are considered according to type , being significantly lower in differentiated markets where the stakeholder landscape is extremely complex, the value proposition is high and the market is driven by price (eg, somatropin) versus commodity markets where access is mostly controlled by payers and the product has limited intrinsic value (eg, G-CSF and the epoietins).

Future evolution
The learning curve for biosimilars is essentially still building in Europe and the high clinical requirements of the new MAbs and anti-TNFs will present further hurdles ahead. In the meantime, small molecule generics continue to represent the main source of cost savings in the region. However, the clarity of EU regulation and the need for further cost-containment action in the unfavorable economic climate are likely to ease the uptake of biosimilars going forward, as payers become more familiar with their use, tendering processes are established and late adopting markets such as Italy and Spain follow the leading countries.

Pharmerging economies: On a fast track
Most of the pharmerging markets, including China, India, Brazil and Mexico, have developed their own regulatory pathway to manage the approval of biosimilars. While often drawing on the European framework, these generally set a lower barrier in terms of clinical trial requirements and regulatory control. This enables local manufacturers to enter the pharmerging markets on a more level playing field, but it also potentially provides a lower cost entry point for international players. Such a looser structure has already fuelled the launch of modified biologics within the oncology and EPO markets in key countries such as China.

Going forward, government initiatives are anticipated to boost the biosimilars market in  south-east Asian countries, principally as a means of sustaining their domestic industry. Within the concentrations of biopharmaceutical manufacturing globally, bio-clusters are already emerging in this region, some of them matching the quality standards of advanced economies. South Korea in particular, with plans to become a leading biosimilars player, is actively expanding its world-class clinical trials and production infrastructure, cultivating bio-specialized manpower, reinforcing global export capability, building R&D, legal and system support strategies.

Although the biologics market is still at an early stage in the pharmerging economies it is expanding fast and biosimilars will play a key role in its future growth. However, the unique nature of these countries may see a market that evolves over time in an entirely different fashion. Whether European and US manufacturers of biosimilars will be able to enter more easily or find themselves locked out by local competition is currently an open question.

2020 outlook
Within the three main geographic clusters, a number of differentiating factors will impact the value generation opportunity for biosimilars, including ease of access in the short term, speed of uptake, clarity of regulation and, particularly, the role of public and private stakeholders.

Accordingly, most of the immediate value will be sourced from the pharmerging markets, spurred by the anticipated flow of new patients. However, in the long-run, the US will be the cornerstone of the global biosimilars market, powering a sector worth between US$11 billion and US$ 25 billion in 2020  representing a 4% and 10% share respectively of the total biologics market. The overall penetration of biosimilars within the off-patent biological market is forecast to reach up to 50% by 2020, assuming a price discount in the range of 20-30% (or 40-50% with tender discounts included).

Compelling returns, wide appeal
Despite the inherent risk, the expected productivity of investing in biosimilars could match or exceed benchmark returns from R&D. In fact, simulating the potential internal rate of return (IRR)8 of a biosimilar investment compared to an industry benchmark shows that it could actually yield a higher IRR than developing a brand new biologic.

Furthermore, biosimilars can fit within the strategic agenda of various company profiles – as demonstrated by the eclectic mix of innovator manufacturers, generics houses and players from other industries that are already entering the sector. They offer a source of long-term financial returns, an opportunity to address diminishing pipeline productivity and a basis for building an R&D platform for the future.

Importantly, too, they provide access to the fast-growing pharmerging markets where critical new patient segments are easier to penetrate. The enormous potential of the pharmerging markets is a key upside driver and for many companies a principal reason for investing in biosimilars despite the high financial barriers short-term.

A further key attraction of biosimilars for R&Dbased companies is the opportunity to develop biobetters or biosuperiors – ie, improvements to originator biological molecules as opposed to structural imitations of the originator. For manufacturers, a major advantage of biobetters is their lower early-stage R&D costs compared to originator drugs.

In reality, regulatory pathways in the EU and US could encourage the development of biobetters rather than biosimilars. These biobetters would use the standard biological approval route, rather than the abbreviated pathway used by biosimilars. This would mean that biobetters, as ‘new drugs’, would benefit from market exclusivity.

Tapping the potential
Unlocking the potential of biosimilars will require a focused strategy along the whole value chain, from optimizing the clinical development program through developing the most suitable strategy for commercialization. Balancing the trade-off between in-house versus strategic alliances will be essential for achieving cost efficiencies and speeding up time to market, with further tailoring by geography to cope with a heterogeneous landscape (Figure 8). Entry into pharmerging markets, for example, will be strongly governed by partnerships with local players.

The opportunity afforded by biosimilars can be considered from two different standpoints: either as a means of protecting current value or as a source of new value generation. For companies focused on value protection, evaluating and mitigating risk will be key with a view to optimizing resource allocation post-LOE; those looking to join the biosimilars journey will need to thoroughly assess their strategic fit, the building blocks for successful entry and the optimal go-to-market model design.