Deal making in the biosimilars market: increasing investment for decreasing return? - DataMonitor

Driven by significant opportunity and a perceived lower risk strategy for taking a slice of the booming biologics market, companies have been investing heavily in biosimilars in order to capitalize on a market forecast to be worth $3.5 billion by 2015.

To exploit this opportunity, companies have embarked on a hearty meal of deal-making. Since the biosimilar market’s formal inception in Europe in 2005, deal flow has been solid. Generics companies made early forays, seeking to leverage relationships with payers and drive long-term growth. Over time, more companies, including several originator pharma and biotech companies have invested in the market.

To date, biosimilar deals have focused on building synergies and de-risking investments. Companies have joined forces to maximize the potential of combined resources, or have licensed assets or capabilities to fill internal gaps. Rarely have companies hit the acquisition trail. When they have, biosimilars have been part of the deal, rather than the key driver of the purchase.

Collaborative deals have given companies the ability to walk away from deals with manageable losses, should things not play out as expected. Acquisitions, on the other hand, are higher risk and more expensive.

Due to limited information, and companies keeping their cards very close to their chests, total deal value in the biosimilars market is hard (almost impossible) to calculate. However, one thing is for sure; in a market that was only worth $243 million at the end of 2010, investment has, thus far, significantly exceeded return.

A high price for a lean cut?

The extensive barriers to entry: high up-front investment costs, the likely need to compete on price rather than product differentiation, and uncertainty over issues such as substitution may seem to make the biosimilar market unattractive to potential investors.

However, since the approval of the world’s first biosimilar in April 2006, deal flow in the biosimilars market has been solid. Multiple deals have been announced, and at all stages of the value chain. And while financial terms of many deals have never been published, it is assumed that the total value of deals announced so far is in the region of $10 billion.

From a technology perspective, one deal stands out from the rest. In December 2011, Baxter International and Momenta Pharmaceuticals announced a collaboration to develop and commercialize interchangeable biosimilars. While the deal focuses on development and commercialization of biosimilars, technology is at its heart.

Momenta Pharmaceuticals specializes in the detailed structural analysis of complex drugs. In a statement to the market, Momenta’s president and CEO, Craig Wheeler, commented that the main focus of the deal was to “…create interchangeable biologic products by taking advantage of Momenta's innovative physicochemical and biologic characterization capabilities, coupled with a quality-by-design approach to process development."

A key market-shaping issue of the biosimilars market is interchangeability between the reference product and the biosimilar. By developing fully interchangeable biosimilars, Baxter and Momenta would have a significant advantage over the competition. Fully interchangeable biosimilars could potentially be perceived as “more biosimilar” than the reference product. As such, uptake could be faster.

A significant number of manufacturing deals have also been struck in the biosimilars market. Back in January 2009, Teva Pharmaceuticals joined forces with Lonza to create Teva-Lonza Biopharmaceuticals, thereby allowing Teva to gain access to Lonza’s biologics manufacturing capabilities. A key part of the deal was the manufacturing and supply of Teva’s biosimilar rituximab, TL-011. Three years after the deal was announced, Teva suspended the development of TL-011 “…to consider the best path to a regulatory approval in Europe and the US”.

Soon after the Teva/Lonza announcement, US-based Merck & Co made its first external investment in the biosimilars market. In December 2008, it kicked off its biosimilar strategy by investing $1.5 billion to establish Merck BioVentures (MBV). Then in February 2009, it acquired the biosimilar manufacturing facilities of Insmed for $130 million. The deal also included a number of pipeline products, including a biosimilar G-CSF (INS-19) and a biosimilar pegylated G-CSF (INS-20).

Other manufacturing deals have been struck, including Roche’s biologics manufacturing deal with Indian-based biotech, Emcure. Roche has given Emcure rights to manufacture Rituxan (rituximab) and Herceptin (trastuzumab) for India. Innovation as a way of competing with biosimilars has been, and remains, the name of the game at Roche. This deal does indicate, however, that Roche is willing to adopt a flexible strategy in certain markets.

Driven by regulatory requirements for clinical testing of biosimilars, clinical development services have also been in high demand. Companies such as Merck & Co, Samsung and Amgen have all set up strategic biosimilar development collaborations with CROs in order to gain expertise in biosimilar clinical development and support regulatory activities.

In January 2011, MBV partnered with Parexel International to gain access to clinical development and regulatory services. As part of the deal, a MBV unit was established within Parexel to support all ongoing clinical and regulatory activities for the company. Samsung’s $266 million deal to establish a joint venture with Quintiles in April 2011 and Amgen’s deal with PRA International in May 2012 were struck for similar reasons.

Outside of deals that were focused on technology platforms, manufacturing capacity and clinical development services, big money has also been spent on biosimilar product licensing deals. Over the last four years, several high profile deals have been struck, many of which have been focused on complex biosimilars, including monoclonal antibodies (mAbs) and fusion proteins.

Indian-based biotech Biocon has out-licensed rights to its biosimilar pipeline twice in the last few years. In June 2009, Biocon out-licensed rights to its mAbs portfolio, including trastuzumab (Herceptin; Roche) and bevacizumab (Avastin; Roche) to Mylan. And in October 2010, Biocon struck a deal with Pfizer, allowing Pfizer to gain access to its biosimilar insulin portfolio, a deal which has subsequently been cancelled.

To complement its deal activity in the clinical trials and manufacturing spaces, MBV has also licensed rights to certain pipeline biosimilar assets. In June 2011, the company invested a potential $720 million to gain global rights (except Turkey and Korea) to HD-203, a biosimilar version of etanercept (Enbrel; Amgen) from Korea’s Hanwha Chemical. Only a few months later, Amgen put those plans to the sword by announcing a 'stealth patent' that could keep Enbrel biosimilars off the US market for another 15 years. While Merck & Co can continue development outside the US, the new patent will impact entry into the US market, which accounts for just under half of Enbrel’s global sales.

And not to be overshadowed by Merck & Co, Amgen has also struck several deals to gain access to pipeline biosimilars. Kicking off in December 2011, Amgen joined forces with Watson Pharmaceuticals to collaborate on the development and commercialization of biosimilar oncology mAbs, with Watson paying $400 million for the privilege. Then in July 2012, Amgen and Watson licensed global rights to Synthon’s biosimilar trastuzumab (Herceptin; Roche). Synthon’s biosimilar trastuzumab completed Phase I testing in March 2012, and Phase III trials are planned for early 2013.

While this is only a small selection of the deals seen in the biosimilars market over the last few years, it shows that deal flow has been solid. As companies jostle for position and strive to establish themselves in a potentially lucrative segment of the biologics market, much investment has been made.

However, the rate at which generic, biotech and pharma companies invest in biosimilars, and aim to incorporate biosimilars into their core businesses, is likely to slow down in the next couple of years. Why? A simple explanation is that rates of return are not as meaty as companies have expected.

While more investment is likely to be announced in the near-term, there will also be announcements of strategy changes, with companies pulling out of the space due to investments not bringing the expected rates of return. While the biosimilars market is attractive, there is only so much of the pie to go around.

This article is property of Scrip Newsletter, an Informa Business.

Meet Duncan Emerton and a host of leading biosimilar developers at next year’s BioProcess International Europe Conference. For more information about next year’s conference and our special rates for pharma companies, please visit www.bpi-eu.com

This Article Was Originally Published in Scrip Newsletter, Nov 2012