The biotechnology drug revolution

Posted June 3rd, 2016

The biologic drug revolution has arrived. While only about 20% of the drugs currently on the market today are biologics, nearly 80 have been approved for use in the U.S. since the year 2000.1, 2 Currently in the U.S., there are over 900 biologically engineered drugs in development for over 100 diseases, while worldwide sales of biologics are expected to grow to nearly half of the top-100 selling drugs in just the next two years.1, 3

From biologics to biosimilars

But while the statistics above speak to the onrushing wave of new biologic drugs, our concern is for the end of the biologic drug life-cycle. Specifically, this means the process of producing lower-cost versions of name-brand biologic drugs at the end of their patent protection period. This is a much more complicated process than we are used to seeing with traditional generics:

  • Producing generic forms of traditional brand name drugs presents comparatively few complications. That’s because, once you get down to their constituent ingredients, the brand and the generic compounds are identical.4
  • But a biologic is based on a living system and inherently involves tremendous complexity and variability. This variability makes getting an exact compound match of an existing biologic drug virtually impossible.5
  • Therefore, the term biosimilar applies rather than generic. Biosimilars are highly similar to their reference product, but they can have allowable differences because they are made using living organisms.6

The question is this: What will happen as biologic drugs start to lose their patent protections and begin the transition to lower-cost versions? Will we see a smooth and orderly transition to less-expensive biologic versions in a similar manner to the way we now see with generics?

Many are counting on just this happening, with cost savings from new biosimilars projected to be over $100 billion over the next few years.7 However, this process is just now getting underway, and there are many unanswered questions.

One particular question centers on the unique developmental processes and complex ‘living system’ design properties of these products. The size and complexity of the biologic molecule makes them perfect subjects for patent protection. Each drug can be protected by hundreds of different patents.5

The fear is that drug makers can use the patent system to delay new versions of their biologics for extended lengths of time. Lengthy, strategic patent litigation could artificially extend the effective length of a brand’s exclusivity – and higher cost.3

But before we get to questions of patents and cost, let’s back up just a few years and ask ourselves how we got to where we are today.

Cliffs and roller-coasters

Since about 2010, drug makers have been facing one of the biggest waves of drug patent expirations in history, often referred to as the “patent cliff.”8 Manufacturers of branded traditional drugs have lost billions in sales as dozens of popular products like Plavix®, Singulair®, Diovan®, and Lipitor® have reached the end of their patent protections.

The forecast shows the number of expirations going up sharply, before a significant decline through the year 2020:

Drug makers react

Patent expirations matter, because when patents run out, drug maker profits fall substantially. New drugs are enormously expensive to develop – each one costing over $2 billion by one estimate.9 Manufacturers depend on the patent protection period to recoup those investments, and also to cover the costs of other experimental drugs that may never make it to market for one reason or another.

While new drugs are expensive to develop, once a new drug enters the market, the protection from competition afforded by patent protection can mean high profits: gross profit margins can exceed 90%.8

Drug makers have been especially hard-hit by the loss of patent protection on their “blockbuster” drugs. Blockbusters are drugs with sales of at least $1 billion, and have traditionally been aimed at populations of millions.10

At the beginning of the patent cliff period, just 133 blockbuster drugs accounted for over one-third of all drug sales worldwide—compared to the thousands of prescription medications available overall.11 Since that time, at least 50 more blockbuster drugs were, or are scheduled, to lose patent protection through the year 2020.8

Typically, once a drug loses patent protection, generic makers are ready with generic versions that are initially anywhere from 15- 30% cheaper.8 Under perfect market-competitive conditions (i.e., 5-10 competitor generics), it is not unusual for a branded drug to then lose upwards of 90% of their sales within a year or two.8

Looking specifically at the patent losses for 2016 brings us to the present day. We can see two enormously successful drugs, Crestor® and Humira®, the largest-selling drug in the world, are among those scheduled to lose patent:

Getting off the roller-coaster

As their losses accumulated over the last decade, drug manufacturers began to realize an important truth: huge sales and big target populations are great, but huge losses are not. As a result, drug makers began to change their strategy as they looked to replace expiring old drugs with new ones.12

There are actually two parts to this new strategy:

  • First, they are increasingly trying to avoid targeting mass-market drugs in favor of creating drugs for smaller, but very specialized markets.12
  • Second is an increased focus on biologically engineered drugs.12

Smaller, but safer, markets

Pricing power is one of the key advantages that biologic drugs offer to manufacturers. Innovative and effective new drugs can come into even relatively limited markets and still be quite profitable, thanks to the tremendous pricing power of the new drugs.13

Drugs that command compelling pricing power within a limited market are sometimes called “orphan drugs.”3 Orphan drugs refer to markets that are so small, (less than 200,000 patients in the US) that most drug firms won’t devote their resources to them. But whether a market technically qualifies as “orphan” or not, the basic point is the same: unique, effective drugs can command big price margins in their class.

We mentioned Humira earlier; it is a good example of the precise clinical targeting and subsequent pricing power offered by biologic drugs.

With about 1.5 million adults suffering from RA in the US, RA is by no means an orphan disease. But compared to the 71 million Americans who have high cholesterol (the target market for Crestor), it’s still a relatively small market.14

But RA drugs, led by a small number of powerful biologics, including Humira, represent fully one quarter of all specialty drug spending in the US. Humira, with annual sales over $8 billion in the US, accounts for nearly 25% of the RA market share all by itself.15

A 25% market share worth $8 billion is going to get just about any business leader’s attention. But remember, the drug makers are also interested in smoothing-out the roller-coaster effect they suffered when their old blockbuster drugs went off-patent. How can they protect their pricing power if new competitors are free to enter their market space?

Here is where the second great advantage of biologic drugs comes in to play. While patent litigation is certainly part of the traditional drug landscape, biologics are comparatively large, complex molecules, with equally complex production processes.16

This complexity make biologics perfect for employing patent laws to make it as difficult as possible for potential competitors, with potentially far-reaching economic consequences for those who pay for these treatments.

How that happens is our next topic.

References

  1. PharmExec.com. Patent Strategy Implications in the Biosimilars Space. Apr 11, 2015. Accessed at: http://www.pharmexec.com/patent-strategy-implications-biosimilars-space on 02.29.2016.
  2. U.S. Food and Drug Administration. Vaccines, Blood & Biologics. Feb. 20, 2015. Accessed at: http://www.fda.gov/BiologicsBloodVaccines/DevelopmentApprovalProcess/BiologicalApprovalsbyYear/ucm434959.htm on 03.02.2016.
  3. The Economist. Going Large. Jan. 3, 2015. Accessed at: http://www.economist.com/news/business/21637387-wave-new-medicines-known-biologics-will-be-good-drugmakers-may-not-be-so-good on 02.15.2016.
  4. Amgen, Inc. Biosimilars Versus Generics. Accessed at: http://www.amgenbiosimilars.com/the-basics/biosimilars-versus-generics/ on 03.02.2016.
  5. PharmExec.com. Biosimilars: The Litigation and Patent Challenges to Come. May 4, 2015. Accessed at: http://www.pharmexec.com/biosimilars-litigation-and-patent-challenges-come on 02.29.2016.
  6. U.S. Food and Drug Administration. Information for Consumers (Biosimilars). Updated: Aug. 27, 2015. Accessed at: http://www.fda.gov/Drugs/DevelopmentApprovalProcess/HowDrugsareDevelopedandApproved/ApprovalApplications/TherapeuticBiologicApplications/Biosimilars/ucm241718.htm on 03.02.2016.
  7. Pharmaceutical Commerce. Biosimilars represent a $56-110-billion savings potential in 2016-2020, says IMS Institute. Updated: April 16, 2016. Accessed at: http://pharmaceuticalcommerce.com/latest-news/biosimilars-represent-a-56-110-billion-savings-potential-in-2016-2020-says-ims-institute/ on 04.20.2016.
  8. U.S. Pharmacist. Drug Patent Expirations and the “Patent Cliff”. 2012;37(6)(Generic suppl):12-20. June 20, 2012. Accessed at: http://www.uspharmacist.com/content/s/216/c/35249/-title=Drug on 03.10.2016.
  9. Pharmaceutical Research and Manufacturers of America. 2015 biopharmaceutical research industry profile. April 2015. Accessed at: http://www.phrma.org/sites/default/files/pdf/2015_phrma_profile.pdf on 02.15.2016.
  10. Investopedia.com. DEFINITION of 'Blockbuster Drug'. Accessed at: http://www.investopedia.com/terms/b/blockbuster-drug.asp on 03.09.2016.
  11. DailyFinance.com. The 10 Biggest-Selling Drugs That Are About to Lose Their Patent. Mar 14th 2011. Accessed at: http://www.dailyfinance.com/2011/02/27/top-selling-drugs-are-about-to-lose-patent-protection-ready/ on 03.10.2016.
  12. Michael Bailey Associates. What do patent expirations mean for the pharma industry? Aug. 08,2014. Accessed at: https://www.michaelbaileyassociates.com/news/pharmaceutical/what-do-patent-expirations-mean-for-the-pharma-industry on 02.15.2016.
  13. The New Yorker. Biotech’s Hard Bargain. April 28, 2014. Accessed at: http://www.newyorker.com/magazine/2014/04/28/biotechs-hard-bargain on 02.15.2016.
  14. National Center for Chronic Disease Prevention and Health Promotion, Division for Heart Disease and Stroke Prevention. Cholesterol Fact Sheet. April 30, 2015. Accessed at: http://www.cdc.gov/dhdsp/data_statistics/fact_sheets/fs_cholesterol.htm on 03.21.2016.
  15. Market Realist. Humira Takes Top Spot for Rheumatoid Arthritis Drugs. July 2, 2015. Accessed at: http://marketrealist.com/2015/07/key-therapies-rheumatoid-arthritis/ on 03.22.2016.
  16. Biotechnology Innovation Organization. How do Drugs and Biologics Differ? Oct. 11, 2010. Accessed at: https://www.bio.org/articles/how-do-drugs-and-biologics-differ on 03.10.2016.