Healthcare investors are paying increasing attention to biosimilars, which are biotechnology drugs that are similar, but not identical, to original branded biologic drugs. This interest has been sparked by the size of the global biologic market (estimated at $130 billion in 2012) and the large numbers of biologic therapies that will lose patent protection in the next 5 - 10 years.
According to a report by the Sandoz division of Novartis (NVS), approximately $100 billion of originator biologics are expected to lose patent exclusivity by 2020. There are clearly two sides to the coin here: on one side, the innovator companies facing patent expirations will have to figure out ways to make up for the loss in sales and maintain revenue growth, on the other side, a large group of companies worldwide that are developing biosimilars and are planning to capitalize on this opportunity. The biosimilars market could, in fact, evolve to become one of the single fastest-growing sector within the entire pharmaceutical industry - Sandoz is estimating a compound growth rate of 50% for the years 2015-20.
How do investors take advantage of this opportunity? A number of the large cap pharmaceutical companies have established biosimilar programs including Pfizer (PFE), Merck (MRK), Novartis , and Boehringer Ingelheim (private). The larger generic companies including Teva (TEVA) and Dr. Reddys (RDY) are also in on the game.
Among the established US pharmaceutical companies, we think Hospira is well positioned to succeed. Hospira, which was previously the hospital products business of Abbott Labs until it was spun off in an IPO, is already one of the largest marketers of injectable drugs and infusion technologies worldwide. In the past 5 years it has built an impressive track record developing and marketing biosimilar drugs overseas.
Right now, Hospira is the only US company marketing biosimilars in Europe. It launched Retacrit, an erythropoietin biosimilar, in the EU in 2008 and this has since become the number one selling biosimilar in the European EPO market. Hospira has also successfully launched biosimilar versions of the white blood cell treatment filgrastim (the reference product being Amgen's Neupogen), which it sells under the name Nivestem in Europe and Australia.
The company's first US launch will likely be a biosimilar version of EPO, which is currently in a Phase 3 trial in the U.S. Sales of the reference drug, Amgen's Epogen, were over $2 billion in 2012. Until now, there has been no specific regulatory pathway for biosimilars in the US but this will change in 2014, supported by a new framework set out in the Patient Protection and Affordable Healthcare Act. Hospira's overseas biosimilar experience will be an important competitive advantage in establishing a US presence in biosimilars. In addition to its capabilities in sales and marketing and in the conventional generic pharma business, the company's interactions with the regulatory authorities in the EU and Australia have helped it amass a wealth of technical knowledge around biologic clinical trials and regulatory issues.
Hospira has one of the largest biosimilar pipelines in the industry, with 11 products in total. It has entered into a series of partnerships including a deal with Korea-based biotech company and biosimilar pioneer, Celltrion, to work on monoclonal antibody drugs. This deal included rights to Inflectra, a biosimilar of infliximab (Remicade) for rheumatoid arthritis, inflammatory bowel disease and plaque psoriasis. Inflectra received a positive opinion from the EMA Committee for Medicinal Products for Human Use (OTCQB:CHMP) in June this year. Agreements are also in place with Human Genome Sciences (now part of GSK), Stada and Croatia based Pliva for manufacturing of other biosimilars.
There are relatively few small companies in the space, partly because of the size of the investment required and the difficulty in creating a sustainable, competitive business model. One company, however, that we think offers a compelling pure play investment in biosimilars is Boston based Epirus Biopharmaceuticals.
Epirus has devised a unique business model that targets emerging healthcare markets where there is active government support for biosimilar introduction. Emerging markets have seen a lot of progress in biosimilars and, in fact, are way ahead of both the US and EU in terms of the numbers of product launches. Of the approximately 80 approvals for biosimilars worldwide so far, more than 75% of these have been in the emerging markets in Asia, Latin America and Eastern Europe. Demand has been driven by macroeconomic factors and by governments in these nations that are highly motivated to seek out lower-cost biosimilars that can reduce the financial burden on nationalized healthcare systems, insurance companies and other payers.
The Epirus approach is centered around a series of local joint ventures with established companies that have expertise in the markets that interest them. This strategy makes sense because success in these markets will be very much dependent on having access to the necessary local production and sales/marketing infrastructure as well as knowledge of legal and regulatory requirements. The plan is for Epirus to use these partnerships to build a local manufacturing plant that will allow "in market, for market" production of biosimilars. Negotiations are now ongoing with companies in several markets including Brazil, South Africa and South America with the first deal expected to be signed very soon. These discussions also involve the governments / regulatory authorities in these countries - in many cases they are offering incentives that can help establish domestic biosimilar production.
Epirus's portfolio of biosimilars is made up of monoclonal antibodies, focusing on immunology and oncology markets. Their most advanced product candidate is a biosimilar version infliximab (Remicade), which is currently in Phase 3 trials. If successful, Epirus will likely be the second company to introduce a biosimilar of this drug (following Celltrion / Hospira) with a launch slated for 2014. The reference drug, marketed by the Janssen Biotech division of J&J (NYSE:JNJ), generated more than $7 billion in worldwide revenue in 2012.
Epirus is still private and has been funded to date by a group of top-notch venture capitalists -- TPG Biotech, 5AM Ventures and Montreux Equity Partners. We hope this will be an opportunity for broader investor involvement with this company.