Biosimilar Competition: Perception and Reality

May 12, 2016

Article

Several biologic drug manufacturers face biosimilar competition, but are financial markets pricing them appropriately?

The Biologics Price Competition and Innovation Act (BPCIA) was passed in 2009, enabling biosimilars to compete with branded biologics.

This law was considered to have potential to enhance patient access to advanced therapies through lower drug costs resulting from greater competition among drug manufacturers. In many ways, it was, and still is, viewed as the Hatch-Waxman Act for biologics.

However, many industry experts were quick to point out that manufacturing biologics isn’t as easy as making small molecule drugs. Biologic drugs are often produced through many different steps in manufacturing processes (some of which are patented), and even products in the same batch can vary by molecular weight and 3-dimensional conformation.

Contrary to initial hopes, biosimilars are projected to be priced at about 80% of their branded competitors’ cost upon release. As a result, the biosimilar market is looking less like the generic small molecule market and more like a branded space with 2 or more competitors.

Interestingly, there’s still uncertainty about how the BPCIA will play out for first-to-market biologic manufacturers.

Take AbbVie, for example. Sales of its biologic adalimumab (Humira) totaled $22 billion in 2015, representing 65% of its net revenue.¹ Humira’s patent is set to expire in December 2016, and as of this February, more than 5 different companies have begun developing biosimilar versions of adalimumab.²

One would expect AbbVie’s stock price to decline because of this market reality. Indeed, shares of AbbVie currently have a price-to-earnings (P/E) ratio of just 18, compared to the S&P 500 P/E of 20, and the biotechnology sector as a whole of 47.³

Is the market reacting to the prospect of biosimilar competition rationally? Perhaps not.

Although Humira’s patent may expire this year, it’s indicated for more than 10 different diseases in the United States. That’s important to note because pharmacists can’t automatically substitute a biosimilar for Humira unless it has a specific indication for the disease at hand, or the prescriber has requested a switch. In that case, if the biosimilar doesn’t have the indication, then it’s being used off-label.

Furthermore, AbbVie has invested extensively in its relationships with payers and managed care organizations for Humira, which is evidenced by the rebates it offers each year. As a percentage of gross revenue, these rebates have increased sharply over the last 6 years, from 18% in 2010 to 27% in 2015. Interestingly, AbbVie gives back more of what it makes from Humira to payers, and yet net revenue from Humira has increased.

Those rebates are powerful negotiating tools for biologic manufacturers, especially in the face of the biosimilar competition to come. So, even if there are 5 adalimumab biosimilars in the market by this time next year, they probably won’t reach patients if their manufacturers can’t match the price concessions that Humira offers.

That analysis doesn’t even consider the fact that many patients and physicians won’t feel comfortable switching to biosimilars right away, given their lack of real-world experience with these therapies. This patient-physician dynamic may be the most important consideration of all, but unfortunately, it’s almost completely unpredictable.

In light of these considerations, AbbVie predicts global sales of Humira to reach $18 billion in 2020, whereas some analysts are estimating only $13 billion.⁴ That’s a huge difference, but there’s no way of knowing who’s right at this point.

This facet of the pharmaceutical industry is salient for not only AbbVie, but also all companies with a portfolio that includes 1 or more biologic therapies. The next 5 years will be quite telling for how patients, prescribers, and even investors perceive and react to biosimilars.

References

1. AbbVie. Annual report 2015. abbvieinvestor.com/phoenix.zhtml?c=251551&p=irol-sec Published 2015. Accessed April 21, 2016.

2. Farooq R. Biosimilars threaten AbbVie Inc Humira as it approaches patent expiration. businessfinancenews.com/27672-biosimilars-threaten-abbvie-inc-humira-as-it-approaches-patent-expiration/. Published February 9, 2016. Accessed April 21, 2016.

3. Damodaran A. PE ratio by sector (US). pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/pedata.html. Published January 2016. Accessed April 21, 2016.

4. Loftus P. AbbVie profit tops estimates and sees higher Humira sales by 2020. wsj.com/articles/abbvie-boosts-outlook-as-results-top-views-1446205731. Published October 30, 2015. Accessed April 21, 2016.