The U.S. Food and Drug Administration (FDA) has issued draft guidance to develop biosimilar products and is tied to the implementation of the Biologics Price Competition and Innovation Act of 2009 (or BPCI Act).
The act, apart from providing faster approval for biosimilar drugs, confers 12 years of market exclusivity to the innovator biologic drugs upon approval.
A biosimilar refers to officially-approved subsequent versions of innovator biopharma products made by a different company after the expiry the patent and exclusivity of the original product.
Let's see what impact the latest development would have on the drug stocks.
Among pharma companies, Roche and Novo Nordisk are most exposed to biosimilars in Europe .
With these draft guidelines broadly in-line with expectations, we expect them to see little more than a slight negative sentiment hit in the near-term," Jefferies analyst Biren Amin wrote in a note to clients.
The analyst said that for more complex products such as antibodyconjugates or highly purified protein mixtures, it is highly likely that more sophisticated manufacturing and analytical methods and possibly clinical trials will be required, therefore increasing costs for biosimilar entrants. This could apply to products like Seattle Genetics' (NASDAQ:SGEN) Adcetris or ImmunoGen (NASDAQ:IMGN) and Roche's T-DM1.
Furthermore, some biosimilar products may not be seen as fully substitutable by clinicians. As a result, drugs like Biogen Idec (NASDAQ:BIIB) and Elan's (NYSE:ELN) Tysabri could come under the scanner.
In the above scenario, where a potential serious risk (i.e. progressive multifocal leukoencephalopathy, or PML) may require more extensive studies, may motivate physicians to continue using the branded biologic, and deter biosimilar companies from investing the cost to maintain the pharmacovigilance programs.
Progressive multifocal leukoencephalopathy (PML), a risk associated with intake of Tysabri, is a rare and usually fatal viral disease that damages the material that covers and protects nerves in the white matter of the brain.
Amin noted that investors must also consider the longevity of existing patents, which may extend far enough into the 2020s, such as with Biogen Idec's Avonex, that the risk of biosimilars does not play a significant role in the near-term investment thesis.
In addition, several branded companies are developing novel formulations and delivery devices to significantly improve upon first-generation biologic, such as Roche and Halozyme's (NASDAQ:HALO) subcutaneous Herceptin and ViroPharma (NASDAQ:VPHM) and Halozyme's subcutaneous Cinryze, each of which would significantly extend their respective brand's exclusivity.
"An easily anticipated consequence of all this may be that biosimilar players will likely target the "low hanging fruit", drugs combining the largest market opportunities with relatively less complicated technology/manufacturing and few data requirements," Amin wrote.