Biopharma companies have seen tremendous growth in the past 10 years, demonstrating the enormous potential biologics have in treating disease, and until now, have been shielded from losses associated with patent expiries and competition. The Affordable Care Act changes that with a new regulatory pathway for biosimilar drug approvals in the U.S.
 
Drug prices for insulin, human growth hormones, drugs to treat chemotherapy side effects and others could fall in price by as much as 20-40% with the introduction of biosimilars. IMS Health data show that five of the top ten U.S. medications, in terms of sales, are biologics (Humira, Enbrel, Remicade, Copaxone, Neulasta). While the opportunity is immense, gaining market share with a biosimilar product may prove to be a challenge.
 
KPMG recently issued a report that presents some considerations for manufacturers of biologics, whether they are the originator of the product or developing a biosimilar. The report notes how European launches of biosimilars have been uneven, providing some lessons in the market. Biosimilars have been available in Europe since 2006, when the EU approved a version of Omnitrope, a human growth hormone. In markets with competition between original products and biosimilars, innovators have been willing to discount branded products to maintain market share, therefore makers of biosimilars should be conservative about pricing and market share expectations.
 
KPMG Strategy’s Mark Ginestro discusses the impact of biosimilars after the FDA’s recent approval of Novartis’ Zarxio (filagrastim) in the U.S., and what drug makers should anticipate and lessons to be learned from European competition in this sector.  −KB
 
Contract Pharma: What are some considerations for manufacturers of biologics, whether they are the originator of the product or a maker of a biosimilar?
 
Mark Ginestro: Manufacturing biologics is an extremely complex process that requires sophisticated quality controls. This takes a substantial investment of funds and time to build expertise and stability in the manufacturing process. Historically, facilities were set up to be largely dedicated to one product and, when multi-product was the intent, the changeover process was very long and resource intensive. 
 
New manufacturing technologies are being deployed with, among other things, disposable manufacturing equipment and smaller bioreactors that will allow for smaller batch sizes, faster changeovers, and the ability to more quickly react to changes in demand. The investment is still substantial, but the potential return on this investment can be sooner with more flexibility in capacity planning and scheduling by increased utilization. Companies are weighing whether to retrofit existing facilities or sunset legacy technology facilities over time and establish new facilities. 
 
CP: How will drug makers of innovative biologics need to balance their resources if they plan to make biosimilars?
 
MG: I get this question a lot, and it is one we’re helping our clients answer. There needs to be a delineation between resources dedicated to innovative and biosimilar products. This delineation can take many forms. This is a balance between leveraging existing capabilities with the tension of having a low-margin business operating adjacent to a high-margin business. 
 
Suggesting Walmart go into high fashion or Goldman Sachs to start offering banking solutions to at-risk credit individuals doesn’t seem like a viable strategy, and this has been reinforced by research and management gurus for decades. Companies need to focus on leveraging their strengths, be that commercial, manufacturing, development, or other, and seek to establish partnership or independent divisions within the company in other areas. Companies with discipline to know where they are good and delineate other capabilities will be the winners.
 
CP: What are some of the lessons to be learned from European competition in this sector?
 
MG: Patience may be the key here, since global biosimilar sales only hit $1.3 billion in 2013.  The European market has had biosimilars in place since 2006, but the drugs are only now starting to gain acceptance after a slow start. There are now 20 biosimilar products on the market and biosimilar versions of more than 40 insulins are currently under development in the European Union. Some of the innovator companies may take a cue from European markets about the slow uptake, and biosimilar makers need to be conservative about their expectations for market share. 
 
The other primary lesson is that each market segment (geography, customer type) and each product behave differently depending on the influencers in the prescribing and buying process. We have seen radically different uptakes across products and segments. Applying the same marketing approach to all is ineffective so each segment/product market must be carefully considered.
 
CP: Taking into consideration the expense of clinical trials and manufacturing (as well as challenges associated with biologics), what sort of margin can we expect with biosimilar costs?
 
MG: This is very difficult to answer and, frankly, impossible to answer briefly. This is guidance that should be coming from the company if it is willing to share it. It would vary from company to company. Applying generalities that are commonly used in the press, the cost of getting a biosimilar to the market is anywhere from $75 million to $250 million. While this is not as costly as an innovative product’s $800 million to $1 billion in development costs, you need marketing support to compete against entrenched products that have a lot of credibility with doctors and patients. We are also dealing with a moving target here, as we need to see how companies initially launch and how innovators respond. It will depend on their motivations for gaining or retaining market share. 
  
CP: Do you see biosimilar development impacting innovation?
 
MG: R&D spending will continue on products because the industry cannot afford to stand pat, because investors and society will demand new medicine. When Hatch -Waxman became law in 1984, the pharmaceutical industry continued to innovate and developed some of its most successful products well into the 1990s and beyond.  If you look at the top selling drugs in the U.S., about half are now biologic-based and that proportion will grow. We are also only scratching the surface of personalized medicine, since genetics, immunotherapy, nanotechnology and other forces could revolutionize how medical care is delivered.  
 

Mark is a principal at KPMG Strategy, focusing on Healthcare and Life Sciences. Mark has 20 years of experience in strategy, market research, acquisition integration, divestiture carve-out, process improvement, regulatory compliance, organizational effectiveness, and change management. Mark has experience in all aspects of life sciences, including pharmaceuticals, biotechnology, medical device, diagnostics, and healthcare distribution. He also leads KPMG’s initiatives and thought leadership in biosimilars.