With revenue prospects increasingly static for small molecules, the onus is on drugmakers to generate new sources of "spark."
Follow-on biologics (FOBs) have been cast as the next big driver of growth, but there are trip wires that could short-circuit
any strategies for competing in this segment. While FOBs have tremendous revenue potential, companies must consider a number
of risk factors when staking a claim in the business—unique science, regulatory complexities, and the head start granted a
few key players suggest that this is not a sector for the faint of heart.
The market for FOBs exemplifies just how adversity can lead to opportunity: As patents on first generation biologics expire,
demand is increasing for more options to provide successor follow-on biologics that can maintain progress in the treatment
of chronic and complex diseases, at lower cost. As biologics begin to make up a larger share of the medicine cabinet, sustaining
their value in the marketplace beyond patent expiry creates an opportunity for new sales—assuming the right regulatory policies
are in place. According to Datamonitor, 16 biologics will lose their patent protection in the US alone by 2015, and this
number is likely to be exceeded in other regions like Europe, where a specific regulatory pathway for approval of FOBs is
already in place.
These precedents, as well as anticipated cost savings from FOB prescribing, are driving changes in US legislation to define
a dedicated FOB approval process and provide a specific period of market exclusivity for pioneer products. Both Big Pharmas
and generics companies are staking out their positions; the final arrangement—likely tied to pending congressional action
on comprehensive healthcare reform—will determine which players lead the competition in this space.
High-Cost Development, Slow Uptake
Even with clear policies in place, companies need to assess whether FOBs will actually be adopted by the markets they target.
Attention has focused on exclusivity periods and bioequivalence standards for FOBs, yet success in the field will ultimately
come to those that create the most innovative commercial approach. The winners will be those who develop superior biologic
products with improved characteristics that meet the needs of patients and physicians, and do it cost-effectively.
Why is innovation in future biologics critical to sustaining success in the specialty market? Because most FOBs will never
be identical to the innovator product, and will therefore face different market challenges than bioequivalent small-molecule
generics. The burden of developing so-called "generic" biologics has been fiercely debated (see Table 1), and the consensus
is that development will take up to 10 years and cost between $100 million and $200 million.
These factors are likely to extend time lines and drive development and marketing costs into the range for innovative biologics,
rather than what is required to support small-molecule generics. As a result, FOB manufacturers may not have the flexibility
to compete with an innovator product, even though that is a key rationale for FOBs in the first place. Because of the development
costs and potential for a lower ROI, fewer companies are expected to compete in FOBs, which lowers the prospect of real pricing
competition even further. In a June 2009 report, the Federal Trade Commission anticipated competition similar to that between
branded products, with modest price reductions that allow the originator product to maintain the majority of its market share.
But this does not lead to real savings gains for health insurers and PBMs, which creates a challenge for building market share.
If the FOB isn't interchangeable and requires a separate prescription, what is the likelihood that a physician would choose
the FOB over the innovator product? And with slow uptake, generics manufacturers won't be able to capture enough market share
to recoup expenses.
Datamonitor surveys conclude that uptake of biosimilar FOBs in the US will be slow, regardless of how much Congress greases
the policy wheels, until at least the middle of the next decade. It forecasts about $2 billion in sales by 2014, at which
point growth will decline due to the entrance of second generation FOBs. And that assessment doesn't even take into account
second-generation branded products that will further erode market potential for FOBs.