The global biosimilar market is still in its very nascent stage, though has huge potential as $200bn in biotechnology drug brand sales is set to be more universal in the next decade. This poses a meaningful opportunity for biosimilar companies. A biosimilar is a biologic medicine that is approved based on showing that it is highly similar to an existing approved innovative biological product, known as a reference product. They are used to treat a range of diseases, including cancer, rheumatoid arthritis, diabetes and anemia.
The growth in biosimilars will be driven by biologics. These are products such as vaccines, blood and blood components, allergenics, somatic cells, gene therapy, tissues, and recombinant therapeutic proteins rolling off patent.
These forces will occur across geographies, with the US and EU comprising the largest markets given that they are overseen by single regulators. While the first biosimilar was approved in 2006 in the EU and in 2015 in the US, the first complex biosimilar was approved as recently as June 2013 by the European Medicines Agency (EMA) and April 2016 by the US Food and Drug Administration (USFDA) in the form of monoclonal antibodies (mAbs, a type of protein made in the laboratory that can bind to substances in the body, including cancer cells). As regulatory precedents are established, we expect a bigger influx of biosimilar products going to market. Biologics accounted for seven of the ten best-selling drugs in 2016 globally, indicative of the commercialisation potential.
Asian players are highly competitive and are vying for share of this opportunity in the developed market. Europe is at the forefront of biosimilars adoption, and it created a supportive regulatory regime early on while the regulatory models remain underdeveloped in other regions. So far, Europe has introduced biosimilars of five reference products: Epogen, Neupogen, Remicade, Enbrel, and, most recently, Rituxan.
The first mAb Remicade captured approximately 50% market share within 30 months of post-initial approval. Enbrel biosimilar garnered 48% market share in the UK and 29% in Germany within the first year of launch. These market entry cases bode well for others in the future.
We believe that the USFDA regulatory regime has been broadly conducive for biosimilar development and the US market is forecasted to grow from a low base of $0.2bn in 2015 to $8.4bn in 2020, propelled by the immunology segment.
Lack of interchangeability – producing an equivalent clinical result as a reference product in patients – will lead to a gradual ramp up for biosimilars. Interchangeability implies that distributors drive market share changes among manufacturers while lack of interchangeability would shift control to the physician level. While lack of interchangeability will lead to measured but stickier market shares for first-mover biosimilar companies, interchangeability implementation will benefit late stage entrants to gain market share with steeper discounts.
Developing a biosimilar is a far more nuanced and complex process than developing a generic drug. Capital expenditures for this new class of drugs are considerable. A biosimilar will cost $100m to $200m in investment and eight to ten years of development time to bring to market. A small–molecule generic will cost $1m to $5m and take three to five years to develop.
A biosimilar is typically subject to about 250 in-process quality tests during manufacturing, compared with about 50 tests for a small molecule generic. Biosimilars, like all biologics, are produced through an intricate, multi-step process, using living cells.
We believe that the global biosimilar market will be lucrative in view of structural complexity relative to small molecules, a changing regulatory environment, and various demonstrable analytical capacities and clinical outcomes to gain regulatory approvals.
Given the longer development cycle, we believe first mover advantage will be meaningful. We believe Asian companies are leading the pack in seizing the global biosimilar opportunity. While the Celltrion Group has been in the forefront, other companies in the space including Samsung Bioepis, Biocon, and Dr Reddy’s.
Given the high initial cost of initial R&D, complex patent labyrynths, and the lack of interchangeability, most companies in Asia have chosen partnership models in order to de-risk their investments. The biosimilar companies focus on research and development, while partners focus on regulatory approval, litigation risks, and marketing activity. Most partners are global pharmaceutical companies with an established and strong presence in developed markets.
Biosimilars are a nascent drug technique and the industry hinges on regulatory approvals and capital-intensive development cycles. We are at the beginning of a megatrend of fusing biologics with medicine, and market size is predicted to expand considerably in the years ahead. We will be closely monitoring Asian players in the global marketplace as developments unfold. Investors should be doing the same as this healthcare segment is a theme too significant to ignore.
 Alliance Bernstein
 Frost & Sullivan (2017)
 Mirae Asset Global Investments Research (2017)
 Mirae Asset Global Investments Research (2017)
Saniel Chandrawat is a senior investment analyst at Mirae Asset Global Investments (Hong Kong)