Biosimilars - Part III - The Market

With news of Teva's accepted FDA submission for Neutroval, a biosimilar to Amgen's Neupogen, it's high time to dust off the key board and write Part III Biosimilars - The Market.   Part I of my Biosimilar Series covered pending Healthcare Reform legislation to streamline biosimilar approval.  Part II - Biosimilars, High Entry Barriers, discussed the presence of very substantial entry barriers to the registration, manufacturing and marketing of biosimilars. Part III Biosimilars - The Market... will discuss the likely size of the market and the facets of competition which will likely develop.

Data suggests that top selling Biotech drugs will
represent a $97 billion dollar target for biosimilars with $51 billion in product revenue launched more than 12 years ago (most or which will be off patent by now or soon).  See chart below (source Nelson Healthcare Consulting analysis of FTC data). 

Biosimilar competition will not look like that of generic pharmaceuticals. Biosimilars will likely only target these larger biotech brands given high investment requirements and presence of large entry barriers.  Entry barriers will limit the number of biosimilar competitors to an original Biotech Brand.  This in turn will limit price discounting relative to the Biotech brand. 

We know from the small molecule generic market that the first entrant prices close to the originator price and it takes an additional 3 to 4 competitors to drive down the price of generic alternatives to levels at or below 20% of the brand price.  In fact we can observe a similar pricing pattern with Biosimilars by looking at the European EPO market.   As of November 2008, three biosimilar competitors had prices at about a 25% discount and market share of about 22% (Source FTC).  We can also look at the US market for human growth hormone (HGH) where there are two biosimilars on the market.  Discounts were reported in the range of 10% to 40% and as of November 2008 the biosimilar market share was only 4% (source FTC).  Interestingly the US HGH biosimilar product compaines invested in both sales and marketing. I would expect many biosimilar competitors to also invest in marketing and sales to convey to providers and patients that their product offers efficacy and safety and possibility distinguishing characteristics from originators including formulation benefits or other deliverly benefits* (see Teva Tropin's injection system).  In general, I do not expect biosimilars to expand markets as they will be too busy selling the fact that they are a valid substitute to the originator and the price discounts will not be substantial and thereby influence demand.

So a quick estimate of the global biosimilar market, say 5 to 10 years out, might be roughly $20 billion or a 20% revenue share of original biotech sales.  Increased market penetration by biosimilar competitors will likely depend upon the emerging industry's ability to limit quality issues and legislation promoting more favorable regulatory approval pathways (e.g. granting of interchangeability and substitution for the originating compound which is in both the House and Senate's version of Healthcare reform legislation).  

In Part IV of the series I will comment on key success factors for succeeding in the Biosimlar Market place. 

* Readers may recognize this type of competition as Multisource Branded competition, which exists in some small molecule pharmaceutical markets.  Multisource brands are branded products of the same active compound of an originator but with sales and marketing to differentiate the product from the originator.  Often differentiation is focused upon the benefits conferred with novel formulations.