Competitive strategies in life sciences: biobetters versus biosimilars
November 2011 | TALKINGPOINT | SECTOR ANALYSIS
FW moderates a discussion on competitive strategies in the life sciences sector between Gregory Bell at Charles River Associates, Rajeshwari Hariharan at Rajeshwari & Associates, and Paul A. Calvo at Sterne, Kessler, Goldstein & Fox P.L.L.C.
FW: Could you briefly outline the distinction between biosimilars and biobetters?
Bell: Both biosimilars and biobetters are derivative variants of the original biologic molecule. A biosimilar aims to be a near-perfect facsimile of the biologic, analogous to a ‘generic’ in the small molecule space, but substantially more complicated structurally and from a manufacturing perspective. Conversely, a biobetter’s objective is to demonstrate differentiation from the original. Indeed, as the name suggests, a biobetter will show improvement in one or more attributes over the original biologic, for example, in the form of a better side effect profile, faster action, lower dosing, or different form of delivery. Obviously, there would be more hurdles associated with regulatory approval for a biobetter. It may make more sense to conceive of biobetters as ‘bio-me-too’; subtle but significant changes that may target a specific patient segment with a more specific value proposition.
Calvo: Biosimilars are close copies of marketed originator biotherapeutics. The name ‘biosimilar’ clearly indicates that there can be some differences to the originator product, as opposed to small molecule generics where structural identity is required. In certain cases, the biosimilar is so close to the originator as to be deemed ‘interchangeable’ with the originator product. In the US, these copies must have the same safety, purity, and potency profile as the originator compound. On the other hand, by definition a biobetter is superior to the originator molecule, by for example, having greater potency or decreased side effects/immunogenicity. Biobetters are also considered to have a different ‘active compound’ when compared to the originator product.
Hariharan: A biosimilar is a molecule that has a structure and properties similar to an innovator drug, providing the same therapeutic effect. In other words, biosimilars can be considered as generic versions of the originator drug. On the other hand, a biobetter is a biologic which may include molecular or chemical modifications and would therefore constitute an improvement over the originator drug. The modification may result in advantageous effects such as reduced toxicity, a once-a-day dose, and so on. The biobetter is therefore a tweaked version of the originator drug, doing the same job, but in a better and smarter way.
FW: How might biobetters allow life sciences companies to deal with the billions of dollars worth of biologic drugs that will see their patents expire in the coming years?
Calvo: Biobetters potentially have less risk involved in their development because they build on already-validated targets. Depending on the process to create the biobetters, the platform may also be applicable to more than one product, thus saving substantial development dollars. And although biobetters will presumably require a full set of clinical trials to be approved by the regulatory agencies, this will also provide data exclusivity protection to companies for their biobetter compounds. An example where a biobetter has already been successful is Aranesp. Aranesp was launched prior to expiration of the original patents covering EPO and the existing patient population was migrated to the new product. As a result Amgen did not lose much market share in erythropoietins to competitor products when the patents did expire.
Hariharan: Given that branded originator drugs are expensive and there is a need for greater access to cheaper, but effective drugs, biosimilars do have a good market potential. The cost of a biosimilar may easily be 50 percent less than the branded drug and developing countries are certainly looking for cheaper and effective alternatives. Biosimilars could, however, face patent litigation issues if they are launched prior to expiry of patent, while a biobetter armed with the added modifications and improved profile, may itself qualify for a patent. The R&D costs are lower than in the case of an originator drug primarily because the target has already tested. In this scenario, a biobetter has a greater potential since it would offer more benefits to a patient. Hence a neatly priced biobetter could be expected to do well in the market.
Bell: Both biosimilars and biobetters can offer prospective growth to life sciences companies. Biobetters, however, may enable these companies to deploy ‘offensive’ strategies that turn threats to their core portfolio into opportunities. In particular, if a biobetter is found to provide substantive benefits to patients, providers, or payers, it will be more likely to support a pricing strategy that optimises value and maintains profitability. Ideally, a biobetter or bio-me-too could become part of a well-integrated therapeutic or biologics portfolio that could fundamentally alter the company’s go-to-market strategy and substantially mitigate exposure to one-off biosimilar attacks that attempt to mirror generic success in small molecules. In this way, biobetters and bio-me-toos escalate risk and criteria necessary for biosimilar success and partially forestall biosimilar market penetration.
FW: What are some of the major development and commercialisation issues associated with biobetters?
Hariharan: Development of biobetters is as difficult as with any other originator drug. Though the R&D costs may be lower, the process of obtaining a real good biologic is loaded with hurdles. Therefore the development of a biobetter is likely to take a long time. One of the major issues in commercialisation may be the investment in clinical trials and in obtaining regulatory permissions. Development of a biobetter therefore calls for a large investment and a certain appetite for risk. Biosimilars on the other hand, have to go through abbreviated clinical pathways, and hence to that extent could be cost effective. Biobetters would be encouraged if they are able to avail exclusivities such as patent term extension, and so on.
Bell: The first major development issue associated with a biobetter or a bio-me-too is identification of the apparent unmet need and quantification of the potential market opportunity. The second major development issue concerns the ability to address that unmet need in a manner that would be expected to forestall a substantial expansion of regulatory requirements. The most interesting issues often arise when an innovator brings a biobetter to market with the original molecule still in place and enjoying a measure of success. A set of robust market conditioning, product co-positioning, customer segmentation, and pricing strategies is essential to directing customers to the appropriate product for their needs while optimising lifecycle value for the manufacturer’s portfolio. The innovator must clearly characterise and parameterise the incremental value of the ‘betterness’ for each key stakeholder type, across geographic markets, and be open to the fact that, for some, this value may be zero or even negative.
Calvo: Although it sounds intuitive, for biobetters, the major development hurdle is to identify changes that actually result in a ‘better’ compound. Since biobetters are viewed as having a different active compound relative to an originator compound, there must be changes to the actual active itself that result in improved pharmacodynamic properties. For example, a different formulation of an originator product that perhaps has decreased particle impurities would not be considered a biobetter, but a pegylated form of a protein therapeutic could. In terms of commercialisation, the same issues surrounding originator products – for example naming, maintaining a sales force, and so on – also come to bear for the biobetter as well.
FW: In what ways can biobetters help life sciences companies to drive manufacturing efficiencies within their organisation?
Bell: Since biobetters are, essentially, modifications upon an existing molecule and manufacturing process, they may offer some manufacturing efficiencies to innovator companies, but biologics are considerably less susceptible to the scale and scope economies that often characterise the more traditional manufacture of small molecules. As such, it is likely to be much easier to repurpose an innovator’s manufacturing facilities used to produce a small molecule that has just gone generic than it would be to repurpose a biologics facility if the innovator is not otherwise going to continue to pursue the product opportunity in competition with biosimilars or by investing in a biobetter or a bio-me-too.
Calvo: Many originator companies are making a major push to developing biobetters because of their expertise in the manufacture of biotherapeutics. The fact that they may already have expertise with a given target or certain therapeutic indication allows them to draw on previous knowledge to streamline future development. Companies are also trying to identify platform processes that can be applied to more than one existing product to develop panels of biobetter compounds. Although the modifications will need to be validated for each individual compound, a platform modification process allows for rapid generation of panels of presumed biobetters. An example of this might be parallel modifications to monoclonal antibodies to improve their effector functions.
Hariharan: With pipelines evaporating, there is a search all the over the world for the next new molecule, the game changer. It has eluded many and may continue to do so. Hence biobetters which do not call large scale investment as an originator product, present a unique opportunity that no company in the biologics business should ignore. With several drugs going off patent and with market demanding better products, biobetters are the next best alternative. The market of biosimilars and biobetters is likely to grow at an exponential rate. Companies are likely to come up with strategies to leverage new manufacturing processes to increase profit; and delve into scientific considerations including establishing similarity, defining bioequivalence and interchangeability, and assess immunogenicity to preserve biosimilar integrity.
FW: What are some of the issues associated with the pricing structures for biosimilars and biobetters?
Calvo: Pricing of biosimilars will inevitably be closely tied to the originator compound. Estimates on cost savings for biosimilar products as compared to originator products are believed to be about 25 percent initially. But the fact that biologics going off patent will not see anything near the 70-90 percent price erosion seen in the first year for small molecule generics makes the biosimilar class much more attractive for investment, but at the same time increases the risk involved. As more biosimilar products enter the market for a given compound, the cost savings for the biosimilars compared to originator should increase as competition drives the price lower. Biobetters should be less cost sensitive because they are in essence a new compound. That said though, the biobetter will still need to take into account the price of products already on the market because their pricing will still need to be competitive, albeit higher.
Hariharan: Originators always have huge R&D costs coupled with the risk of clinical pathway costs to recoup. Because biosimilars have simpler regulatory compliances, they may be able to make drugs at affordable prices and also make them accessible to a larger populace. Biobetters may have to do some R&D to improvise the originator product which may reflect in the overall cost of the drug. However, it is estimated that given the immense potential of this market, it is only expected to soar upwards in the coming years.
Bell: Pricing issues will differ by geography. However, biosimilars are unlikely to be subject to the same steep price erosion curves that have come to characterise generic entry in small molecules; biobetters or enhanced biosimilars are likely to be able to further withstand the pressures of price erosion. For biobetters, a price premium is not out of the question. Further, to the extent that biosimilars, biobetters, and bio-me-toos come to market in the form of compelling portfolio value propositions, there is likely to be further resistance to pricing pressures.
FW: Can you highlight the key legal and regulatory challenges that arise when bringing biosimilars and biobetters to market, particularly in terms of undertaking clinical studies, maintaining quality controls and gaining approvals?
Hariharan: Regulatory challenges are perhaps the ones to watch out for because biobetters, on account of their structural differences and differences in properties, would not face so many legal hurdles in terms of patenting. Initial development at the laboratory is as difficult or easy as an originator product in terms of regulatory compliances. The gradient may not be that steep in the case of biosimilars. Quality control issues would again be as stringent as in the case of originator drugs.
Bell: One of the holy grails for a successful biosimilar, biobetter, or bio-me-too strategy will be indication extrapolation: showing safety and efficacy in clinical trials with respect to one indication and then being approved for all related indications possessed by the innovator product. One of the challenges to the success of this practice will be the ‘portfolio in a product’ concept that has been espoused by some biologics – a set of somewhat unrelated indications associated with a specific product, such as Remicade’s indications in rheumatology, gastroenterology, and dermatology. Will regulators require trials in each distinct set of uses? The legal challenges on the biosimilar front are likely to be substantial, particularly with respect to method-of-use patents for those products that may be promoted for a variety of indications, such as Remicade or Rituxan.
Calvo: In the US, since the FDA has not yet issued guidelines for biosimilar approval, the picture is unclear as to the amount and nature of clinical studies that will be required. In drawing on the experiences in Europe however, it appears that much of the initial regulatory interactions will be on a case-by-case basis until enough data points are collected for a more standardised approval process. For biobetter compounds, it appears that the full clinical testing regimen will be required. However, for both types of products a clear understanding of the intellectual property surrounding the target molecules is of utmost importance. This not only includes patents that cover the compositions and methods of their use, but also those that cover so-called second generation patents which include, for example, patents on formulations, dosage forms, and upstream/downstream processing of the product.
FW: Looking ahead, what do you believe is the long-term potential of biosimilars and biobetters for the life sciences industry?
Bell: The upcoming patent cliffs facing manufacturers of blockbuster biologics are daunting – by various accounts, over $60bn in branded biologic sales are coming off patent in the next several years. Unlike conventional pharmaceuticals, originator molecules are likely to forestall some price erosion and market genericisation due to the complexity of the molecules and imperfect replication of the manufacturing process. Nevertheless, biosimilars and biobetters are likely to capture significant share and, more importantly, could change the way major life sciences companies do business – for instance, allocating resources to high science R&D, aligning their production and commercialisation assets, seeking partnership opportunities, developing and executing risk mitigation strategies, and shifting their corporate culture and focus away from brands and toward therapeutic area portfolios and service solutions. For biosimilars, biobetters, and bio-me-toos, the industry is likely to become much more dynamic and strategic than we’ve seen with small molecule generics; there will be a premium on flexibility and willingness to take chances in an ever-shifting competitive and regulatory environment.
Calvo: The future looks very bright for both biosimilars and biobetters. At least initially, the process will likely be slow to realise the full potential of biosimilars. However, as the more complex, and in turn more expensive, biologics such as monoclonal antibodies come off patent protection there will likely be a speeding up of the process. It remains to be seen though how many companies will be positioned to take advantage of the potential of biosimilars. Biobetters will also have vast market potential although their development and success will be closely tied to the ability to provide an improved product.
Hariharan: There can be no doubt that biobetters are the next wave for companies to ride on. In fact, biosimilar manufacturers are also looking to strengthen their long term strategy, with many developing or acquiring technologies to produce improved biologics to help compete against second generation innovator biologic drugs. Many believe that biobetters, with their improved characteristics are a more exciting and favourable proposition than biosimilars and will offer medical advantages along with a better price.
Gregory Bell is a vice president at Charles River Associates, and practice leader for Life Sciences. In addition, he is a principal member of the firm’s Finance, Intellectual Property, and Transfer Pricing practices. Dr Bell’s business consulting engagements focus on the economics of business strategy, working with firms to develop sustainable competitive advantages in specific product markets. He has led and consulted on numerous projects concerning game theory and competitive strategy, global launch strategy, product pricing and positioning, capital budgeting and real options, and cost-benefit analyses. He frequently testifies as an expert witness. Dr Bell can be contacted on +1 (617) 425 3357 or by email: email@example.com.
Rajeshwari Hariharan is a partner and founder of Rajeshwari & Associates. Her areas of practice include counselling on issues relating to patent validity and infringement including rendering patentability opinions, drafting technology transfer and know-how agreements, licences, assignments; prosecution of patent applications in the field of pharmaceuticals, biotechnology and biochemistry. She has rich experience in carrying out due diligence and handling patent oppositions, revocation and appeals before the Patent Office. Currently, she is involved in patent and trade secret litigation at the Supreme Court of India and various High Courts across India. Ms Hariharan can be contacted by email: firstname.lastname@example.org.
Paul A. Calvo is a senior associate at Sterne, Kessler, Goldstein & Fox P.L.L.C. He provides counsel with regard to global patent portfolio strategy, patent validity, infringement, and design around strategies for US and international companies. Dr Calvo is experienced in US and international patent procurement and enforcement matters, FDA/ANDA practice, invalidity, non-infringement, freedom-to-operate and patentability opinions, and due diligence investigations. He can be contacted on +1 (202) 772 8846 or by email: email@example.com.
© Financier Worldwide
Charles River Associates
Rajeshwari & Associates
Paul A. Calvo
Sterne, Kessler, Goldstein & Fox P.L.L.C.