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Enbrel

Enbrel, co-promoted by Amgen (NASDAQ:AMGN) and Pfizer (NYSE:PFE) is one of the most successful drugs in history. Amgen sells it in the U.S. and Canada, Pfizer sells it to the rest of the world. In 2012, Enbrel was the world's second best-selling drug, earning $4.2 billion for Amgen and $3.7 billion for Pfizer from sales outside the U.S. and Canada. Pfizer also received $1.5 billion in 2012 from Amgen as its share of the profits from the U.S. and Canadian sales.

Enbrel's success is remarkable. Even after 20 years on the market, sales have increased for Amgen by 15 percent from the previous year and for Pfizer by 2 percent. Therefore the advance made in Enbrel copycats is critical for imitators and innovators alike.

Cipla

In 2011 Amgen has pulled a near-miracle at the U.S. Patent Office and got a new U.S. patent for Enbrel that will last until 2028. Some biosimilar manufacturers may try to challenge the patent or work around it, but it makes Amgen's management feel reasonably safe inside the U.S. market.

That may not be the case outside the U.S. and Canada for Pfizer. In April, Cipla (OTC:CPLFY), a major drug company in India, launched an Enbrel copy at a 30 percent discount compared to Pfizer's price in India. Cipla named the new product Etacept, which resembles the name of Enbrel's active ingredient, etanercept. India is a big market for the drug.

Rheumatoid arthritis (NYSE:RA) affects an estimated 0.7 percent of the Indian population above the age of 16 years, which considering the size of the population represents a huge number. Of those treated, 60 percent manage RA with branded generics, such as a combination of methotrexate and Arava, a drug made by Sanofi (NYSE:SNY), while the balance need biologics such as Enbrel and Johnson & Johnson's (NYSE:JNJ) Remicade which also sells in India.

Currently, just 5 percent of RA patients who need biologics are taking them. That means there is potential for growth and this is the segment that Pfizer will lose if Cipla is able to convince the doctors to prescribe its medication.

Chinese manufacturers

Cipla's drug is manufactured by the Chinese company Shanghai CP Guojian Pharmaceutical.

CP Guojian Pharmaceutical has been selling the drug in China for 5 years under the name Yisaipu to treat RA, polyarticular juvenile idiopathic arthritis, ankylosing spondylitis (a type of arthritis affecting the spine) and plaque psoriasis.

Cipla's Etacept has not been approved under the new biosimilar guidelines made by the Indian government last year but under the older rules applicable for generics.

Cipla has run a 104-patient Phase III study of safety and efficacy but it also submitted to the Indian regulator the trial data from Shanghai CP Guonjian Pharmaceuticals' Phase I thorough III studies which involved several hundred Chinese patients. Cipla also intends to conduct post-marketing surveillance and submit periodic safety reports to the regulator.

Separately, another Chinese company, Shanghai Celgen Biopharmaceutical sells the brand Qiangke to treat the same indications as CP Guonjian plus psoriatic arthritis.

Quality

Those drugs would not qualify under European or U.S. rules for biosimilar approvals. Current regulations in the EU and U.S. require a biosimilar to have the same amino acid sequence as the innovator biologic, and glycosylation patterns and other structural features to be highly similar, so that the two products closely match in terms of efficacy and safety.

A developer of a biosimilar should first of all analyze the innovator product's amino acid structure to check the range of its structural variations, and determine which variations could affect efficacy and safety. Products marketed in China are not called biosimilars and may not even use the same recombinant DNA sequence as the innovator products. What is the effect on patients? The drugs are most likely less effective and hopefully do no harm. CP Guonjian claims to have treated 50 thousand patients.

But one should not underestimate of the Chinese and Indian companies' global ambitions. When building newer facilities they hire designers from Europe and the U.S. to meet GMP (good manufacturing standard) requirements. For example a Chinese company called Innovent has recently invested $200 million in building a German-designed facility that will meet international GMP requirements to make biosimilar products.

Investor's summary

Cipla's Etacept will retail at Rs 6150 ($113) per 25 mg dose of the drug which is 30 per cent lower than Enbrel's Rs 8700 ($160) per dose or about $16,640 a year, and also somewhat less than the Rs 6525 ($120) per dose that Pfizer charges under a patient assistance program. Patients inject two doses per week.

Cipla's 30 percent discount is not extreme and may be explained by the fact that the drug is imported and the company does not have much leeway in pricing. It is a discount that Pfizer can easily match if it wants to. Enbrel has been sold on the Indian market by Pfizer since 2004 with no biosimilar competition.

Enbrel is a fairly critical product to Pfizer. Amgen's collaboration agreement with Pfizer to market Enbrel in the U.S. and Canada expires on October 31, 2013 and the profit sharing switches to a significantly lower royalty arrangement.

The royalty stream to Pfizer will start at 12% and declines to 10% over three years. After three years the arrangement ends and no more payment is due to Pfizer. Amgen already took over field sales in the U.S. and Puerto Rico. The rights to sell Enbrel outside the U.S. and Canada are reserved to Pfizer indefinitely, so Enbrel remains vitally important to Pfizer.

Enbrel's case in India and China presents an example of a coming trend. While the emerging markets are becoming more and more important to them, U.S. pharmaceutical companies are often forced to compete in huge markets where the FDA has no jurisdiction and adjust to local conditions or sink. We can assume that most of them, like Pfizer, will adjust and survive.

Source: Enbrel's Asian Biosimilar Competitors