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Battle over biosimilar drugs is only for the brave

FRANKFURT (Reuters) - High development costs, complex manufacturing and legal hurdles are holding back generic drugmakers seeking to copy pricey biotech medications nearing the end of their patents.

A pharmacy employee dumps pills into a pill counting machine as she fills a prescription while working at a pharmacy in New York December 23, 2009. REUTERS/Lucas Jackson

Access to the nascent market for so-called biosimilars, worth an estimated $10 billion (6.6 billion pounds) by 2015, will be limited to a close circle of specialist companies with the means to invest heavily and to fend off a legal onslaught, analysts said.

Merck & Co MRK.N has created a biosimilars unit and AstraZeneca AZN.L has said it would be in the field.

The industry, which has so far only copied the human growth hormone, anaemia treatment EPO and G-CSF against low white blood cell count, is now expected to tackle therapeutic antibodies, the most complex class of molecules for medical use.

In the cross hairs are Johnson & Johnson's JNJ.N Remicade against a range of autoimmune diseases and Roche's ROG.VX blood-cancer drug Rituxan, which had $4.3 billion and $5.5 billion in 2009 sales, respectively.

“You are not going to see small shops being able to enter this market ...There are only five to six players that are credibly going to play a role,” said Michael Sjoestroem, chief investment officer at Sectoral, a specialist healthcare asset manager based in Geneva.

“It’s really a market for bigger companies which can make the investment to explore,” said Stijn Vanacker, who manages a healthcare fund for ING Investment Management.

It takes up to eight years to bring a biosimilar compound to market. Development costs are $100-$150 million.

In fact, development, production and marketing of a copycat version of biological drugs already cost about 50 times the amount needed to launch a generic copy of conventional chemical drugs, putting off smaller players.

Analysts expect price discounts of only 20 to 30 percent in markets affected by biosimilar competition -- modest compared with an average mark-down of 90 percent at which generics sell.


Potential rewards are high: Market researchers expect annual sales of biologic drugs -- now at about $100 billion -- to grow two to three times faster than conventional, or “small-molecule”, drugs over the next five years.

Of the $64 billion in global revenues from biologics that will lose patent protection by 2015, $10 billion are expected to face biosimilar competition.

Five years later, 90 percent of today’s biotechnology drugs will be off patent.

Annual treatment costs for patented biologics running into the tens of thousands of dollars per patient have attracted generics makers such as Novartis NOVN.VX, Teva TEVA.TA, Hospira HSP.N and Stada STAGn.DE to the copycat market.

But even the largest player in this fledgling market, Novartis’s Sandoz unit, chalked up only $118 million in sales from its three biosimilar compounds last year.

Biologics, made from proteins that can be more than 800 times the size of molecules found in conventional medicines, are often the only treatment option against serious diseases such as cancer, multiple sclerosis and arthritis.

As biotech drug developers charge more than 20 times the average price of chemical drugs, health insurers can hardly wait for the advent of cheaper versions.

But the complexity and costs of reproducing these drugs eclipse the making of conventional chemical ingredients.

It entails breeding genetically modified yeast, bacteria or hamster cells to spawn therapeutic proteins which then need to be purified and refined in successive procedures.

Patents protect every step of the way, allowing incumbent drug makers to launch a legal broadside against those that follow suit.

“The huge amount of patents related to the numerous production steps and to drug formulation obviously gives the potential for more litigation brought by originators,” said Simon Cohen, an intellectual property lawyer at Taylor Wessing in London who advises major drug companies on the issue.

“Generics makers will look at this market and ask: Is it worth the fight? There’s a lot of talk about biosimilars but from my view there will also be a lot of wait-and-see.”


A particular challenge is that, unlike generics, biosimilars are never exact replicas due to the complex molecular structure of proteins. Benefits and side effects differ somewhat from the original drug.

As a result, regulators are stepping gingerly, requiring extensive tests on humans and defining very narrowly which patients can be given a copy instead of the original.

“Given the position of European regulators I doubt that biosimilars makers can promote their products as direct substitutes. If such claims are made they are likely to be challenged,” said Lincoln Tsang, a lawyer with Arnold & Porter.

Still, the financial rewards for legally and technologically savvy generics makers are sizeable. Cash-strapped health plans continue to pin their hopes on biosimilars not least because originators could make price concessions even if biosimilars win only moderate market shares.

Editing by Sitaraman Shankar