How To Build A Biosimilar Business — And Make Money, Too
By Anna Rose Welch, Editorial & Community Director, Advancing RNA
It seems like a no-brainer that a pharma company’s primary goal is to get much-needed treatments into patients’ hands, while also earning the profits necessary to fund future drug development efforts. When it comes to the biosimilar industry, the scientific and regulatory challenges behind getting a biosimilar to market are becoming a highly discussed topic in the United States. However, there is one question that, surprisingly, can get overlooked: How can a company in the biosimilar space compete and actually make money doing it?
When developing a new drug, a company is focused on how it works, if it can be used in combination, and the percentage of patients effectively treated. However, as Amit Munshi, CEO of EPIRUS Biopharmaceuticals says, “What we normally do as a biotech company will not work here.” To have the ability to make and reinvest profit from entering into the biosimilar space, a company’s vision for itself must keep evolving. As Munshi says, “You need to keep your eyes on what business will look like three to five years from now, and ask how can we move this conversation from ‘I can make a biosimilar,’ to ‘I can make a biosimilar company,’ to ‘I can actually make a sustainable biosimilar business.’”
Why Biosimilar Makers Should Break From A Biotech Mindset
Many discussions about biosimilars involve differentiating them scientifically from reference biologics and small molecule generics. As these cost-effective biologics are a different animal altogether, Munshi argues that makers need to step away from the biotech mindset and embrace the differences biosimilars embody — including their own unique business needs.
Traditionally, a biotech company seeks out partners and outlicenses its product. However, this deal leaves unanswered two key questions that are necessary for biosimilar businesses to consider: What revenue are you left with in three years? And, are you collecting a royalty on what is essentially a generic product? “Imagine you license your drug to a big pharmaceutical company,” Munshi explains. “In return, this large company offers you an upfront payment and 10 percent royalty on sales. But that means, if the product achieves the required yields, you would be left with a 10 percent royalty in three years, and that’s not a substantive foundation for a business.”
As the biosimilar market is still taking shape today, many companies are distracted by the near-term challenges. Companies can become fixated on answering the following questions: Can we get these biosimilars approved in the U.S., and how? What will be the uptake? Can these biosimilars be made cost-effectively? While these are all important questions today, these are not going to be integral to the establishment of a stable biosimilar business in the upcoming years. As Munshi describes, “The questions we’re going to ask three years from now are going to be around earnings and earnings growth, market share, and distribution platforms. This conversation is going to shift from R&D and manufacturing to commercial.”
Therefore, it’s important to re-envision the identity of a biosimilar business. According to Munshi, a biosimilar business possesses the head of a biotech, but the body of a specialty pharma or generics company. “You need the head of a biotech company to be able to execute on the technical aspects. But then you have to switch over and consider how you will create and build a business around the molecules you have,” Munshi describes.
For EPIRUS, one of the challenges to establishing the “biosimilars mindset” was convincing investors that the classic biotech model — using outlicensing deals — was not the best way to build a sustainable business. For instance, a classic biotech investor might have 50 different investments — 49 of which embrace the outlicensing business model. The one outlier investment that decides against outlicensing could send up red flags to the investor. However, as Munshi explains, it’s important to keep in mind that the end product is a “generic” version of a complex biologic. It is not a novel drug for cancer or Alzheimer’s, and, as such, the business model should reflect this key difference.
An Argument For Distribution Partnerships
For EPIRUS, the business solution lies in distribution partnerships. In this arrangement, EPIRUS waives upfront payments in favor of 50 percent of the deal’s economics once the product has been commercialized. This way, three years down the road, the company can be certain it will have a strong revenue base upon which to reinvest in building the business.
To make this business model a success, Munshi emphasizes the need for partners that have longstanding commitments to the biosimilar business. Even within the past five years, this space has seen a lot of turnover. For instance, a company once opposed to biosimilars could today be launching its own biosimilars arm. Or, a company with a biosimilars pipeline could easily be faced with a merger that leads to redefined corporate priorities and a divestment of the biosimilar products. (Take for instance the concern about what Shire’s recent purchase of Baxalta will do for Baxalta’s biosimilar candidates.)
“The R&D budgets of large companies are relatively fixed,” Munshi explains. “Changes in their core product portfolio and their product mix also occur quite often,” whether it be through mergers or changes in leadership. After all, within the past year, we’ve seen Pfizer merge with Allergan. Prior to that Pfizer acquired Hospira, which was already in biosimilar partnerships with other companies. “Now all these players and their candidates are merged into one company. That’s a lot of turbulence for a small company to be in the midst of,” Munshi describes.
This is why it’s important to examine key qualities of the potential partner. For EPIRUS, this has meant turning to companies that offer extensive local market knowledge and employ people who have top-notch expertise. “They have very little turnover at the top of the organization, because they think in terms of 10 to 15 year periods of time, rather than two-quarter chunks,” Munshi says.
These companies also have deep generic pipelines, commercializing upwards of hundreds of generic products. The depth of a potential partner’s pipeline is particularly important for biosimilar companies to consider. The commercial side of biosimilars — how they’re bundled into deals, sold, and distributed — will not be that different from a generics business. In fact, one of the questions Munshi expects will be asked in three years is, “How many of the 50 other products are your partners bundling to sell to, say, the French or Norwegian governments?”
A smaller company like EPIRUS that is attempting to commercialize a biosimilar product on its own will be facing competition from large pharma that could be working on multiple products in the same therapeutic class. Examining the depth of a potential partner’s pipeline can help you determine the strength of that partner. “Partnering with companies that have pipeline synergy can help get multi-product contracts with payers to provide better access to these drugs. The ability to create a value proposition across a basket of products is absolutely critical to long term success,” Munshi says.