ProposalforaThesis

intheFieldofBiotechnology

inPartialFulfillmentofRequirementsfor

theMasterofLiberalArtsDegree

HarvardUniversity

ExtensionSchool

February 1, 2015

MichaelJones

Address

City State Zip

Phone Number

Email address

ThesisDirector:

StuartSimpson,Ph.D.

Address

City State Zip

Email address

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I.

TentativeTitle

“Abusinesscaseontheevaluationofbiosimilardevelopmentcandidates”

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II.

ResearchProblem

Overthepastthreedecades,significantstrideshavebeenmadeintheareaof

drugdevelopment,particularlyinthedevelopmentofbiologics.Withadvancesin

geneticsandbiotechnologyimprovingthedevelopmentofbiologicaldrugs,many

drugcompanieshavetakenadvantageoftheseadvancesandareusingthemto

createlife-changingtherapeuticsforthetreatmentofvariousdiseases.However,

despitetheireffectiveabilitytotreatdisease,thesebiologicscomewithasignificant

costburdentothepayer(e.g.,healthcaresystem,insurancecompanies,and

patients).Whilemosttraditionalpharmaceuticalscostapproximately$730peryear

(Emerton,2013),biologicscancostanywherebetween$15,000and$150,000per

year(Epstein,Ehrenpreis,&Kulkarni,2014).Withtheuseofbiologicsincreasingin

theclinicandcostoftreatmentreachinganall-timehigh,thereisaconsiderable

demandforlow-costalternativesthatcanprovidethesameefficacyandsafetyas

thesebiologics.

Unlikesmall-moleculedrugs,genericbiologicdrugs,alsoknownas

biosimilars,arenotyetavailableintheUSmarket.However,thisisexpectedto

changeoverthenexttenyearsasseveralofthefirstbiologicstoenterthemarket

areexperiencingpatentexpirations.Withmorethan$60billionworthofbiologic

saleslosingpatentprotection(Emerton,2013),manyanalystspredictbiosimilarsto

beaprofitablebusinessventure.Thissentimentofoptimismhasbeenechoedinthe

pharmaceuticalindustryasbiosimilardealsbetweendrugcompaniesandContract

ManufacturingOrganizations(CMOs)havecontinuedtoincreasesince2000

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(Bourgoin,2011).Withanotionthatabrandedbiologicwithlargesalescanresult

inlargerevenuegainsforacounterpartbiosimilar,manydrugcompanieshave

alreadybeguntodevelopbiosimilarsforsomeofthetop-sellingbiologics.Someof

thesebiologicsincludeHumira,Remicade,Enbrel,Rituxan,HerceptinandAvastin,

whichalreadyhave16,9,21,34,30and16biosimilarsrespectively,indevelopment

(Thayer,2013).

WhiletheUSbiosimilarmarketexhibitstremendouspotentialasan

investment,noteverygenerictoareferencebiologicwillbeaworthyinvestment.

Sincethedevelopmentofabiosimilarrequiressignificantcapital,adrugcompany

interestedinthebiosimilarventurewillneedtohaveastrategyinplacewhen

selectingthebiosimilar(s)itwouldliketodevelopandadvancetotheUSmarket.

Whilethetrendappearstofavorbiosimilarcandidatesforthosereferencebiologics

experiencinghighsales(Rader,2013),thiscasestudywillexploretheinvestment

opportunityofbiosimilarsbyevaluatingtwobiosimilarcandidateswithcontrasting

marketprofiles.Ratherthanrelyingonevaluationscenteredongeneralsalesasa

projectionoffuturevalue,suchastheNickischandBode-Greuel(2013)study,this

casestudywillexpandtheNickischandBode-Greuelevaluationtoincludeamore

thoroughandindividualizedanalysisofthebiosimilarmarket.Byapplyingthis

model,Ibelievethisapproachwillprovideamoreconclusivemeasureofvaluefora

biosimilarcandidateinthecurrentmarketthantheevaluationmadebyNickisch

andBode-Greuel.Furthermore,itismyhypothesisthatabiosimilarcandidatefora

referencebiologicwithfewersalesbutapromisingmarketoutlookwillbeabetter

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investmentopportunitythanabiosimilarforreferencebiologicexperiencing

blockbustersales.

Oneofthemostimportantelementsintheevaluationofaninvestmentis

determiningvaluecreation.Althoughtherearevariousmethodstoassessvalue,

whenevaluatingaproduct,itiscommontodeterminevaluecreationbyanalyzing

futurecashflows(revenueandcost)throughquantitativemodels,suchasanet

presentvalue(NPV)model(Brealey,Myers,&Allen,2008;Higgins,2009;Harris,

1997).Sincethedevelopmentofadrugiscontingentonmanyfactors,theNPV

modelcanbeadjustedtospecificallyevaluatethepotentialofadrugdevelopment

candidate(Nickisch&Bode-Greuel,2013;Bode-Greuel&Greuel,2005).Bytailoring

theNPVtoreflectthebiosimilarbusinessmodelandthemarketofeachbiosimilar

candidate,thevalueofeachcandidatecanbedeterminedandcompared.Usingthis

approach,thehypothesiswillbetestedbycomparingtheoutcomeofthefollowing

twoscenarios:(1)thevalueofabiosimilarmonoclonalantibodycandidateforatop-

sellingbiologicand(2)thevalueofabiosimilarmonoclonalantibodycandidatefor

abiologicwithbothfewersalesandamorefavorablemarketoutlookthanthe

biologicpresentedinscenario1.Someprospectivebiologicswithfewersales(under

$2billionworldwidein2013)includeTysabri,Synagis,Xolair,andSoliris

(GlobalData,2014).

Whilethebiosimilarbusinessisbelievedtobeaprofitablebusinessfortop-

sellingbiologics,thiscasestudywillquestionthisnotionbychallengingtheNickisch

andBode-Greuelstudy.Ratherthanrelyingonpeaksalesofthereferencebiologic

tomeasurethevalueofabiosimilarcandidate,asdonebyNickischandBode-

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Greuel,thiscasestudywillimplementamorerobustevaluationapproachthatwill

takeintoaccountboththecurrentbiosimilarlandscapeandmarketprofileofthe

twobiosimilarcandidatesofinterest.Inadditiontoprovidingacompellingbusiness

argumentintheevaluationofabiosimilarcandidate,thiscasestudywillintroduce

andexplainthebusinessmodelofbiosimilarsforthoseinterestedinpursuingthe

biosimilarbusiness.

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III.

DefinitionofTerms

“Biologics”:aclassofdrugsderivedfromlivingorganismsthatarecomposedof

biologicalentitiessuchasproteins,peptides,nucleicacids,orcells(Wang&Singh,

2014).

“BiologicsPriceCompetitionandInnovation(BPCI)Act”:Passedaspartofthe

PatientProtectionandAffordableCare(PPAC)ActtoallowtheFDAtocreatea

regulatorypathwayfortheapprovalofbiosimilars(Wang&Singh,2014).

“Bioreactor”:avesselthatisusedtocultivatecellsforthepurposesofproducingthe

drugofinterest.

“Biosimilar”:abiologicthatishighlysimilarincomparisontothereference

biologicalproduct(Chow,2014).

“Biotechnology”:technologybasedonthefundamentalsofbiologythatuseliving

organismsorbiologicalsystemstoidentify,sequence,andmanipulateDNAforthe

purposesofproducingtherapeuticandmedicalproducts(Simoens,2011).

“Cloning”:ThebiotechnologyprocessofintroducingDNAintoacelltobeusedfor

theproductionofaproteinofinterest.

“Hatch-WaxmanAct”:AcommonreferencetotheDrugPriceCompetitionand

PatentTermRestorationActof1984,thisstatuteallowstheFDAapprovalofgeneric

drugs(i.e.,small-molecules)viaanabbreviatedpathway(Wang&Singh,2014).

“Invivo”:Studiesthattakeplaceusingalivingorganism.

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“Monoclonalantibody”:Anengineeredtherapeuticantibodyusedtotargetan

antigenofinterest.

“NetPresentValue(NPV)model”:Aforward-lookingquantitativemodelthattakes

intoaccountbothcashinflowsandoutflowstodeterminethepotentialvalue

generationofaninvestment(Bode-Greuel&Greuel,2005).

“Processdevelopment”:Theprocessinvolvedintheproductionofatherapeuticvia

clonedcells.

“Referencebiologic”:Thebrandedbiologic(createdbytheoriginator)forwhichthe

biosimilariscomparedto.

“Small-molecule”:“adrugwithalowmolecularweightthatischemically

synthesized.

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IV.

Background

Whatisabiologic?

Biologicaldrugproducts,alsoreferredtoasbiologics,aretherapeutics

manufacturedthroughlivingorganismsusingbiotechnologymethods.Composedof

abiologicalentity,biologicsaremadeupofpeptides,proteins,nucleicacids,orcells

(Wang&Singh,2014).Firstdevelopedintheearly1980’s,biologicsarewellknown

intheclinicfortheirabilitytodiagnose,prevent,andtreathumandiseases.

Drasticallydifferentthanthetraditionalpharmaceuticaldrugs(i.e.,small-

molecules),biologicsarelargerinsize,heterogeneous,anddifficulttocharacterize

(Table1)(Chow,2014).Asaresult,thedevelopmentofabiologicismorecomplex

andcostlyasitisinvolvesintensiveengineeringandmanufacturing.Despitethese

hurdles,biologicsareconsideredsomeofthemosteffectiveandpreferred

therapeuticsforthetreatmentofseverediseases,suchascancer,rheumatoid

arthritis,multiplesclerosis,hepatitis,andmanyothers.AccordingtoWang&Singh

(2014),therearecurrentlyover200differenttypesofbiologicsinthemarketwith

approximatelyonethirdofpharmaceuticalpipelinesconsistingofabiologic.

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Small-molecule Vs. BiologicChemicallysynthesized Production Livingorganism

Defined Composition Complex/HeterogeneousLow MolecularWeight High

Lowcomplexity Characterization HighcomplexityLow Immunogenicity HighHigh Stability LowLow ManufacturingRisks High

Lowtomedium Cost(topayer) HightoveryhighOral Administration Injection

Table1:Differencesbetweensmall-moleculedrugsandbiologicaltherapeutics.

Source:AdaptedfromChow,2014.

MonoclonalAntibodies:ATypeofBiologic

Ofallthevariousbiologicscurrentlyinthemarket,oneofthemostsuccessful

andlargestgrowingclassesoftherapeuticsaremonoclonalantibodies.Antibodies

areproteinssecretedbywhitebloodcellsthatareusedbythehumanimmune

systemtoprotectthebodyfromforeigninvaders.Inprotectingthebody,the

antibodyrecognizestheantigenexpressedbythepathogen–thebodyhasadiverse

panelofantibodiesthatrecognizedifferentantigens–andtriggerstheimmune

response.Likeantibodiesgeneratedbytheimmunesystem,therapeuticmonoclonal

antibodiesfunctioninasimilarfashion.Producedfromlivingorganisms(usually

mammaliancells)throughelaboratemanufacturingprocesses,theseantibodiesare

engineeredtohaveaffinitytowardsanantigenofinterest,inthiscase,thebiological

entitycausingthedisease(Ansar&Ghosh,2013).Asaresultofdetailed

engineering,therapeuticmonoclonalantibodiesareabletoreproducesimilar

immuneresponseinhumansbytargetingtheantigenofinterest.Duetotheirstrong

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bindingcapabilitiesandstability,theseantibodiesareabletoprovidelessoff-target

effectsandareamoreeffectivetreatmentfordiseasethanmostsmall-molecule

drugs(Wang&Singh,2014).Inadditiontotheirtherapeuticapplication,theUS

FoodandDrugAdministration(FDA)hasapprovedtheuseofmonoclonal

antibodiestowardsotherapplications,includingdiagnosisandbioterrorism(Ansar

&Ghosh,2013).

TheDrugDevelopmentProcessForaMonoclonalAntibody

Likesmall-moleculedrugs,thedevelopmentofatherapeuticmonoclonal

antibodyintheUScanbecategorizedinthreemainstages:discovery,preclinical

development,andclinicaldevelopment(Wang&Singh,2014).Priortoengineering

amonoclonalantibodyforthetreatmentofadisease,thebiologicalentity

responsibleforcausingthedisease(i.e.,drugtarget)mustfirstbeidentified.Taking

theformofagene,protein,orRNA,thedrugtargetcanbeidentifiedthroughvarious

scientificexperimentations(e.g.,genetic,invivoandcellular)thattestthe

relationshipbetweenthetargetanddiseaseofinterest(Hughes,Rees,Kalindjian,&

Philpott,2011).Forexample,incancer,therearemanycell-specificantigens

involvedinthepathogenesisofthedisease.Ifonecanidentifyanantigenlinkedto

cancer,thenamonoclonalantibodycanbeengineeredtotargetthatantigenand

modulatethedisease.Thissamerationaleappliesinthediscoveryphase.Oncea

targethasbeenidentifiedandlinkedtothepathogenesisofadisease,various

monoclonalantibodiestothattargetcanbeengineered(Wang&Singh,2014;Ansar

&Ghosh,2013;Hu&Hansen,2013).Oncealeadmonoclonalantibodyhasbeen

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identifiedandoptimized(i.e.,engineeredtohaveminimalimmunogenicity,superior

biochemicalandbiophysicalproperties,andidealpharmacokineticproperties),itis

thenpassedtoprocessdevelopmentforproduction(Wang&Singh,2014).

Priortoproducingthemonoclonalantibodythatwillbeutilizedinclinical

trials,itiscriticaltoestablishthemanufacturingprocessthatwillbeusedto

producetheantibodyofinterest.Thisistheobjectiveofthepre-clinical

developmentphase,toestablishamanufacturingprocessthatproducesadrug

productofhighqualityandsafety(Wang&Singh,2014).Sincemonoclonal

antibodiesareproducedfromlivingorganisms,manyalterationsmayoccur

throughouttheproductionprocess(e.g.,post-translationalmodification,

glycosylation,proteincleavage,andyield)(Genazzani,etal.,2007).Therefore,itis

importanttodevelopamanufacturingprocessthatisbothrobustandconsistent,to

ensurethatthetherapeuticprovidedinclinicaltrials(andthegeneralpublic,if

givenapproval)isconsistentandofthehighestquality(Wang&Singh,2014).

Thefinalstepinthedevelopmentofamonoclonalantibodyisclinical

development.Oncetheearlydevelopmentandpre-clinicalphasesdemonstrate

promisingresultsforthemonoclonalantibodycandidate,thedrugsponsorcanthen

pursuetestinginhumans.TotesthumansubjectsintheUS,itisfirstnecessaryto

receiveclinicaltrialapprovalfromtheUSFDA.Thisisinitiatedbyfilingan

InvestigationalNewDrug(IND)applicationtotheFDAthatsupportstherequest

basedondataacquiredfromearlierdevelopmentphases(Wang&Singh,2014).

OncetheFDAhasgrantedapproval,thedrugsponsorcanthenbeginclinicaltrials

(phaseI-III)todetermineifthedrugisbothsafeandefficacious(Umscheid,

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Margolis,&Grossman,2011).Dependingontheresults,thedrugsponsorcanthen

applytotheFDAforapprovalbyfillingaBiologicsLicenseApplication(BLA).Once

theBLAisapproved,thedrugsponsorcanthenmarketandsellthetherapeutic

monoclonalantibodyintheUS.

AnIntroductiontoBiosimilars

AccordingtotheFDA(2012),aUSbiosimilarisabiologicalproductthatis

highlysimilartoanFDA-licensedbiologicalproduct(thereferenceproduct)for

whichtherearenoclinicallymeaningfuldifferencesintermsofsafety,purity,and

potencyoftheproduct.WhiletherearenobiosimilarsintheUSmarket,thisis

believedtochangeoverthenextfewyears,asseveralreferencebiologicswillbegin

tolosepatentexclusivityintheUS.Withlegislativechannelsinplacetoallowthe

developmentofgenericbiologics,severalbiosimilarsareexpectedtoenterthe

marketoverthenexttenyears(Blackstone&Fuhr,2013).Asaresultofthe

demand,biosimilarstosomeofthebest-sellingbiologics,suchasHerceptin,Humira,

AvastinandEnbrel,areexpectedtoentertheUSmarketby2020(Bourgoin,2011).

Currently,biologicsareoneofthemostexpensivetherapeuticsintheUS

market.Rangingbetween$15,000and$150,000peryear(Epstein,Ehrenpreis,&

Kulkarni,2014),biologicshavecreatedafinancialstrainonboththeUShealthcare

systemandpayers.Withpotentialcostsavingsinthebillion-dollarrange(Bourgoin,

2011)andbiosimilarsalreadyapprovedintheEuropeanmarket,thedemandfor

biosimilarsissteadilyincreasingintheUS.Asaresult,Congresshaspassed

legislationtoallowbiosimilarstoentertheUSmarket.WiththeHatch-WaxmanAct

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openingthedoorforgenericchemicaldrugs(Blackstone&Fuhr,2013),Congress

hasrecentlypassedtheBiologicsPriceCompetitionandInnovationAct(BPCIA)

(underSubtitleVIIofthePatientProtectionandAffordableCareAct)toallowthe

FDAtocreatearegulatorypathwayforbiosimilarsseparatetothegenericdrug

pathwayobservedbysmall-molecules(Bourgoin,2011).Throughthischannel,drug

companiescannowreceiveregulatoryguidanceonthescientificissuessurrounding

biosimilarity(Chow,2014).

ChallengesintheDevelopmentofGenericDrugs:BiosimilarVersusSmall-Molecule

Asdiscussedearlier,unlikesmall-moleculegenerics,theproductionofa

biosimilarisdifficultandcomplex.Producedviaalivingorganism,theengineered

biosimilarisexposedtoseveralalterationsthatoccurwithinthecell(e.g.,

glycosylation,acylation,sulfation,phosphorylation,andproteolysis)andthroughout

theproductionprocess(e.g.,oxidation,deamination,denaturationandaggregation)

(Kresse,2009).Withoutknowingallthedetailsinvolvedintheproductionand

manufacturingoftheoriginalbiologic(someofitisusuallykeptasatradesecret),it

maybeimpracticalforabiosimilartobeidenticaltothereferencebiologic.Asa

result,regulatoryguidelinesregardingtheassessmentofsimilarity(e.g.,structural,

functional,andclinical)arenotasclearandestablishedasitisforsmall-molecule

generics.Sincethereareonlyahandfulofcompanieswiththeexperienceand

capabilitytodevelopbiosimilars,thebarriertoentryisanticipatedtobehigh

(Blackstone&Fuhr,2013).

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Inadditiontothedevelopmentchallengesintheproductionofabiosimilar,

therearechallengesinthebusinessmodelofbiosimilars.Withalimitednumberof

expertsintheareaofbiologics,thecostofdevelopingabiosimilarisexpectedtobe

morecostlythanthedevelopmentofagenericsmall-molecule.Accordingto

NickischandBode-Greuel(2013),thecostofdevelopingagenericsmall-moleculeis

between$1and$3million,whileabiosimilarcanrangebetween$50and$200

million,dependingonthemolecule.Inadditiontocost,developmenttimesarealso

longerforbiosimilarswithanaverageof7to9years(Nickisch&Bode-Greuel,

2013).Lastly,thedevelopmentriskofabiosimilarisgreaterthanthedevelopment

ofagenericsmall-molecule.Althoughtheriskindevelopingabiosimilaris

inherentlylessthanthedevelopmentofanewbiologic–abiosimilargetstobypass

thehigh-riskdrugdiscoveryphaseaswellasphaseIIclinicaltrialssincethe

referencebiologichasalreadydemonstratedefficacyintheclinic–abiosimilaronly

hasa50to75percentprobabilityofsuccesscomparedtothe95percentobserved

forasmall-moleculegeneric(Nickisch&Bode-Greuel,2013).Thisriskcombined

withcost,time,andthechallengesinmanufacturing,makethedevelopmentofa

biosimilaramorecomplicatedbusinessthanthetypicalgenericdrugbusiness.

TheEuropeanBiosimilarExperience

TheEuropeanMedicinesAgency(EMA)isoneofthefirstregulatoryagencies

toapprovebiosimilarsinthegenericdrugmarket.With14approvedbiosimilars,

someofwhichincludeepoetins,somatropins,andfilgrastims(Epstein,Ehrenpreis,

&Kulkarni,2014),Europeaccountsfor80percentoftheglobalspendingin

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biosimilars(IMSHealth,2011).Currently,thegreatestchallengewithbiosimilarsin

theEuropeanmarketisthevarieduptakeobservedacrosscountriesanddrug

classes(IMSHealth,2011).Duetodifferencesinpricingandsentimentacross

differentcountriesintheEuropeanUnion,theuptakeofabiosimilarcanvaryfrom

countrytocountry.Forexample,thebiosimilarfilgrastim(brandname:Neupogen)

ispricedat€149.7inGermany,whileintheUKthesamebiosimilarispricedat

€74.1(Rovira,Espin,Garcia,&Labry,2011).Asaresultofthisinequity,asizeable

uptakedifferenceisobservedbetweenbothcountries,withtheUKexperiencing

greateruptakeovertimecomparedtoGermany(IMSHealth,2011).Inadditionto

pricevariations,theuptakeofthebiosimilarfilgrastimhasalsobeeninfluencedby

sentiment,specificallytheopinionofphysicians.Sincetheeffectsoftreatmentin

filgrastimarereadilyapparent,physiciansfeelmorecomfortableprescribinga

biosimilarthatcanbechangedquickly;ratherthanabiosimilarthathasalonger

timetableintreatment,suchassomatropin(IMSHealth,2011).

DespitethechallengesintheuptakeofabiosimilarinEurope,theEuropean

marketisbeginningtoadapttothepresenceofbiosimilars.Withbiosimilarsales

increasingfrom€3.3millionin2007to€65millionin2009,andthesalesof

respectivereferencebiologicsdecreasing,theEuropeanbiosimilarmarketis

evolvingintoamorefavorablemarketforpayers(Rovira,Espin,Garcia,&Labry,

2011).Asphysiciansandpatientscontinuetogainexperiencewithbiosimilars,and

thepoliciessurroundingbiosimilarscontinuetomature,theEuropeanbiosimilar

marketisexpectedtoexpand.Thisisalreadyapparentinthenumberof

applicationsfiledtotheEMA.In2012,theEMAreceivedanall-timehighofseven

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biosimilarapplications,comparedtotheonebiosimilarapplicationfiledin2009

(Dalgaard,Evers,&Silva,2013).

TheMarketOutlookforBiosimilarsintheUS

Asthepatentcliffclosesinonseveraltop-sellingbiologicsandthedemand

forlow-costalternativescontinuestoincrease,thebiosimilarmarketintheUSis

expectedtodevelopoverthenextdecade.Currently,thefollowingissuesaredriving

afavorableoutlookforbiosimilars:(1)USaccountsforthemajorityofglobal

spendinginbiologics(IMSHealth,2011),(2)expendituresinbiologicshave

increasedovertime(Blackstone&Fuhr,2013)and(3)over$50billioninsalesfrom

biologicswhicharelosingpatentprotectionwillbeavailableforcounterpart

biosimilars(GrantThornton,2013).Asaresult,theUSbiosimilarmarketis

forecastedtobethebiggestopportunityinthegenericdrugindustryby2020(IMS

Health,2011).

Oneofthemaindriversinthemarketoutlookforbiosimilarsisdemand.

Withincreasingexpendituresandloftypricesobservedinthebiologicindustry,

thereisagrowingdemandacrossthespectrumofstakeholders(includingCongress,

payers,etc.)forthedevelopmentofbiosimilars.Althoughpharmaceuticaldrugs

accountfor8to10percentofthetotalhealthcarecostinthemajormarkets,the

costofbiologicscontinuetoescalatebeyondthe$10,000range(Nickisch&Bode-

Greuel,2013).Withtheriseofcostexceedingtheoverallinflationrate–in2010,

biologicsexperiencedanapproximate9percentincreaseovertheConsumerPrice

Index(Blackstone&Fuhr,2013)–theUShealthcaresystemisalreadybeginningto

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feelthefinancialburden,specificallyMedicare.SinceMedicarecoversallspecialty

drugs,therehasbeenlittleincentiveforinnovatorbiologiccompaniestoimplement

apricereduction(Blackstone&Fuhr,2013).However,withthetopsixbiologics

consuming43percentofthepharmaceuticalbudgetforMedicarePartB(Nickisch&

Bode-Greuel,2013),healthcareofficialsareadvocatingforbiosimilarsinhopesof

reducinghealthcarecostsintheUS.

Oneoftheotherfactorsinfluencingthebiosimilarmarketisthebarrierto

entry.Althoughmostgenericsarefacedwithhighlevelsofcompetition,whenit

comestobiosimilars,thecompetitivelandscapeisexpectedtobesignificantlyless

thanthoseseeninthegenericdrugindustry.Withseveralchallengesinthe

productionandmanufacturingofbiologics,onlyafewdrugcompanieswillhavethe

capabilitiestodevelopbiosimilars.Withamarketinthebillion-dollarrangefor

somebiologics,particularlymonoclonalantibodies,thehighbarriertoentrywill

allowbiosimilarcompaniestocaptureasignificantportionofthereferencebiologic

market(Blackstone&Fuhr,2013).Withbiosimilarsexpectedtocost10to30

percentlessthanreferencebiologics(USFederalTradeCommission,2009),

biosimilarsareexpectedtocapturegreatermarginsthantypicallyseeningenerics.

Thisiswillbeevengreaterinthosecaseswherethebiosimilarexpandstheaccess

oftreatmenttothosepatientswhowereunabletoaffordthetherapeutic

beforehand.

Whilebiosimilardevelopmentcostsareexpectedtobegreaterthansmall-

moleculegenerics,comparedtonewdrugs,biosimilarsexhibitreduced

developmentcost,time,andrisk.AccordingtoBlackstoneandFuhr(2013),the

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averagecostofdevelopinganewbiotechnologydrugisapproximately$1.9billion.

Thisissignificantlylessthantheaverageinvestmentinthedevelopmentofa

biosimilar,whichisestimatedtobebetween$50and$200million(Nickisch&

Bode-Greuel,2013).Apartofthisisattributedtodifferencesindevelopmenttime,

withbiosimilarsembracing2to6yearslessdevelopmentthannewbiologics

(Nickisch&Bode-Greuel,2013;Wang&Singh,2014).Lastly,biosimilarsexhibit

greaterlikelihoodofsuccessthannewdrugs.With95percentofallnewdrugsinan

R&Dpipelinenevermakingittomarket(Blackstone&Fuhr,2013),biosimilars

embraceagreaterchanceofreachingmarketwitha50to75percentprobabilityof

success(Nickisch&Bode-Greuel,2013).

UncertaintiesintheUSBiosimilarMarket

Whiletherearevariousfavorablecomponentsintheinvestmentofa

biosimilar,therearealsoafewissuesofuncertaintythatcanimpacttheUS

biosimilarmarket.Oneofthebiggestissuesofuncertaintyinthebiosimilarmarket

isuptake.Giventhenoveltyofbiosimilars,theUSisexpectedtoexperienceaslow

uptakeinbiosimilarsduringitsfirstfewyearsinmarket.However,thisisexpected

tochangeasbiosimilarscontinuetoentertheUSmarketandestablishapresencein

theclinic.WithEurope’srecentincreaseinbiosimilaruptakeandtheirlackofissues

aroundsafety(Blackstone&Fuhr,2013),analystsbelievetheuptakewillsurgeby

2020,whentheUSwillbetheleadingmarketforbiosimilars(IMSHealth,2011).

However,thisforecastwillbehighlycontingentonpricing.Ifthepricedifference

betweenbiosimilarandreferencebiologicisnotsignificant,thereisapossibility

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thatpayerswillnotadoptbiosimilars.Asaresult,pricingwillbeadetermining

factorinuptake.

TheotherareaofuncertaintyiswiththeFDAanditsapprovalmethod.With

differentlevelsofbiosimilarsimilarityatplay,therecouldbeadifferenceinmarket

shareforbiosimilarsapprovedas“highlysimilar”versusthoseapprovedas

“similar”butnotinterchangeable.Thelackofinterchangeabilitycouldinfluencea

patienttoselectareferencebiologicoveritsbiosimilar,despitethetradeoffincost.

Althoughtheissueofinterchangeabilityisapotentialriskintheinvestmentofa

biosimilar,theimpactwillbeaimedatonlyafewbiosimilarssincephysicians

administerthemajorityofbiologicsdirectly(Blackstone&Fuhr,2013).With

substitutionatthediscretionofthephysicianratherthanthepharmacy,thereisan

opportunitytoinfluencephysicianstosidewithabiosimilar,shouldabiosimilar

exhibithighlysimilarsafetyandefficacyasthereferencebiologic.

Thelastmajorhurdleanduncertaintyinthebiosimilarmarketistheimpact

ofclinicaltrials.Currently,theFDAdoesnothaveamandateforclinicaltrialswhen

comparingthesafetyandefficacyofabiosimilartoitsreferencebiologic(Chow,

2014).However,inthecaseofinterchangeability,theFDAmayrequirethe

implementationofclinicaltrialstodemonstratesimilaritybetweenbiosimilarand

referencebiologic(Chow,2014).Thisuncertaintyinclinicaltrialscouldplayan

impactondevelopmentcostsforabiosimilar.Anotherpotentialchallengewith

clinicaltrials,beyondcost,isrecruitment.Sincebiosimilarstargetapopulationof

severelyillsubjects,manysubjectsmaybeinclinedtoavoidaclinicaltrialinfearof

gettingthebiosimilardrugovertheestablishedreferencebiologic(Blackstone&

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Fuhr,2013).Thisreservationcouldmakerecruitingverydifficultforbiosimilars,

especiallyinthosecaseswhenmorethanonecompanyisrecruitingthesame

patientpopulation(Blackstone&Fuhr,2013).

EnteringtheBiosimilarMarket

Asdiscussedearlier,eachbiosimilarcandidatewillneedtogothrough

developmentandanFDAapprovalprocessforthetherapeutictobemarketedasa

biosimilarintheUS.Whilethedevelopmentapproachforabiosimilarcandidate

maydifferfromcompanytocompany,thedevelopmentprocessishighlydependent

onthedrugcompany’sabilitytoexecute.However,unlikedevelopment,market

outlookofabiosimilarisnotentirelydependentonexecution.Whilesomeaspects,

suchasadvertising,canbemanipulated,therearemanyexternaldynamicsinthe

drugmarketthatcannotbecontrolled.Asaresult,foradrugcompanytobe

successfulinthebiosimilarbusiness,itwillneedtounderstandtheexternalforces

impactingthemarketofagivenbiosimilarandtakethemintoaccountwhen

analyzingthevalueofabiosimilarcandidate.Withsignificantcapitalneededto

bringabiosimilartomarket,acompanywillneedtobeprudentindecidingwhich

biosimilar(s)topursue.

Withcurrentbiosimilarsindevelopmentconsistingmostlyoftop-selling

referencebiologics(Rader,2013),thereappearstobeanotionthathighsalesfora

referencebiologicwillresultinapromisingbusinessopportunityforitscounterpart

biosimilar.Forexample,Herceptin,atop-sellingoncologybiologicwith$6.4billion

insaleshasover20biosimilarsindevelopment(Rader,2013).WhereasLucentis,an

22

ophthalmologicbiologicwithapproximatelyhalfthesales($3.7billion),hasonly2

biosimilarsindevelopment(Rader,2013).Whilesomeanalystsbelieveatopselling

biologicisafavorableproposition(Rader,2013;Blackstone&Fuhr,2013;Nickisch

&Bode-Greuel,2013),thiscasestudyaimstochallengethistheorybyimplementing

anevaluationapproachthatisfoundedontheindividualmarketprofileofagiven

biosimilarcandidateratherthanrelyingexclusivelyonsalesasageneralpredictor

ofsuccess.

EvaluatingaBiosimilarDevelopmentCandidate

GiventhelackofbiosimilarsintheUSmarketandthesubstantialdifference

betweenbiosimilarsandsmall-moleculegenerics,astandardapproachtothe

evaluationofabiosimilarhasnotyetbeenestablished.Asaresult,eachbiosimilar

companywillneedtodevelopitsownevaluationmodelthatwillbestinformthe

valueofabiosimilardevelopmentcandidate.Whilethelackofstandardscanmake

theevaluationprocessdaunting,anevaluationmodelcanberedesignedusing

currentfinancialmodelsinthedrugindustry.Onecommonmodelusedin

biotechnologytodeterminethevalueofdrugcandidatesandtechnologyplatforms

isnetpresentvalue(NPV)(Bode-Greuel&Greuel,2005).Aforward-looking

financialmodel,theNPVevaluatesassumptionsonfuturecashflows(gainedorlost)

foragiveninvestmentanddeterminestheoverallvalueofaventure(Bode-Greuel&

Greuel,2005).Sincethepurposeofanevaluationistodeterminevaluecreation,the

NPVcanbeusedtosatisfythisrequirement.Iftheevaluationresultsinapositive

NPV(NPV>0),theinvestmentisexpectedtocreatevalue;however,ifthe

23

evaluationresultsinanegativeNPV(NPV<0),theinvestmentisexpectednotto

createvalue(Bode-Greuel&Greuel,2005;Higgins,2009;Nickisch&Bode-Greuel,

2013).

Inevaluatingabiosimilarcandidate,theNPVmodelcanbeusedtomake

decisionsontheselectionofabiosimilardevelopmentcandidate(Nickisch&Bode-

Greuel,2013).However,priortousingtheNPVasdecision-makingtool,itwillbe

criticaltofullyevaluatethecurrentmarketofabiosimilarinordertomakecredible

assumptionsintheNPVregardingfuturecostsandrevenues(Bode-Greuel&Greuel,

2005).Sincecashflowisinfluencedbythemarket,anevaluationthatlooksatthe

individualmarketlandscapeofagivenbiosimilarcandidatewillprovidegreater

confidenceonestimatedcostandrevenue.Forexample,abiosimilarthat

experiences$1billioninsalesinagivenyear,mayexperienceasignificantdropa

fewyearslaterduetochangesinthemarketsuchas,increasedcompetition,

emergingtherapeutics,lifecyclemanagement,changesintreatmentalgorithm,and

reactionfrompayers(IMSHealth,2011).Asaresult,itwillbewiseforacompanyto

makeanevaluationbasedontheindividualmarketprofileofagivenbiosimilar,

ratherthanallowingsalesofareferencebiologictobethedecidingfactorinthe

selectionofabiosimilardevelopmentcandidate.

TheNickischandBode-GreuelStudyonBiosimilars

Whileastandardizedapproachtotheevaluationofbiosimilarsdoesnot

currentlyexist,in2013,NickischandBode-Greuelpublishedastudyonthe

evaluationofbiosimilarcandidatesviaNPVanalysis.Inthisstudy,theauthors

24

analyzedthebusinessmodelofbiosimilars,andevaluatedtheattractivenessof

biosimilarcandidatesbasedonpeaksalesofthereferencebiologics.Creating

variousscenariosforpeaksales,NickischandBode-Greueldeterminedthatsales

within$2-5billionforareferencebiologicwouldresultina“morefavorable”

biosimilarinvestment(assuminga30%marketshare)(p.30).Whilethisstudy

deservespraiseforbeingoneofthefewbusinessstudiestodiscussthebiosimilar

businessandpresentanevaluationapproachforbiosimilars,theNickischandBode-

Greuelstudyhastwomajorshortcomings.

Thefirstshortcomingwasthelackofanindividualizedmarketanalysis.

Ratherthanevaluatingbiosimilarcandidatesbasedontheiruniquemarketprofile,

theNickischandBode-Greuelstudyweightedthemarketforallbiosimilar

candidatesequallyandassessedvaluepredominantlyonthepeaksalesofthe

referencebiologic.Thesecondshortcomingwastheuseoflegacydata.Sincethe

studywaspublishedin2013,manyofthedatapointscollectedtocreatethe

evaluationdatedbackto2012andearlier.SincebiosimilarshavenotenteredtheUS

market,thebiosimilarlandscapeisconstantlyevolvingintheareasoflegal(e.g.,

patents),commercial,FDAregulations,economics(e.g.,reimbursementand

pricing),andevensentiment.Asaresult,manyoftheassumptionspresentedinthe

NickischandBode-Greuelstudywereoutdated.Tocreateanaccuratebiosimilar

evaluation,thebiosimilarlandscapemustbeanalyzedwithdatathatisreflectiveof

currentissues.Thiscasestudywillaimtoaddressboththeseshortcomingsfromthe

NickischandBode-Greuelstudy.

25

V.

CaseStudyMethods

Basedoncurrentbiosimilardealsandtheopinionsofafewanalysts,there

appearstobenotionthatbiosimilarsfortop-sellingreferencebiologicswillresultin

afavorablebusinessopportunity(Rader,2013;Nickisch&Bode-Greuel,2013;

Blackstone&Fuhr,2013).Whilethismaybethecaseinsomeoccasions,thiscase

studyaimstocounterthisviewbychallengingtheNickischandBode-Greuel(2013)

study.IntheNickischandBode-Greuelstudy,theauthorspresentedageneralized

evaluationforbiosimilarsthatfocusedprimarilyonpeaksalesofareference

biologic.Asopposedtoapplyingageneralizedmodeldictatedbysales,thiscase

studywillexpandtheevaluationmethodologyusedbyNickischandBode-Greuel

andapplyamarket-specificevaluationthatreflectsthecurrentlandscapeofagiven

biosimilarcandidate.Indoingso,thiscasestudywillanalyzethefollowingtwo

scenarios:(1)thevalueofabiosimilarmonoclonalantibodycandidateforatop-

sellingbiologicand(2)thevalueofabiosimilarmonoclonalantibodycandidatefor

abiologicwithbothfewersalesandamorefavorablemarketoutlookthanthe

biologicpresentedinscenario1.Whenselectingthetwobiosimilarcandidatesto

compare,thefollowingcriteriawillbeimplemented:(1)biosimilarreference

biologicmustdifferinsales(usingWWsalesfor2013)byatleast20percent,(2)

biosimilarreferencebiologicmusthaveanexpirypatentdateonorbefore2020,(3)

biosimilarreferencebiologicmusthaveapreliminarymarketoutlookthatsatisfies

thescenariosabove.

26

Oncethebiosimilarcandidateshavebeenselected,thiscasestudywill

analyzeandcomparebothcandidatesusinganNPVmodelsimilartotheBode-

GreuelandGreuel(2005)model.InadditiontotheBode-GreuelandGreuelmodel,

thiscasestudywillusetheNickischandBode-Greuelevaluationmodelthatwas

tailoredtobiosimilars.However,unliketheNickischandBode-Greuelmodel,the

evaluationinthiscasestudywillincludeanindividualizedmarketanalysisthatis

reflectiveofthetwobiosimilarcandidatesofinterestandthecurrentbiosimilar

landscape.Thismarketanalysiswillinvolvethefollowing:(1)clinicaloutlookof

drug(e.g.,mechanismofaction,therapytype,indications,presentations,placement

intreatmentalgorithm,etc.),(2)competitivelandscape,(3)disruptivetherapies

(e.g.,newemergingdrugsorbiosimilarsofadifferentreferencebiologic),(4)

referencebiologicsalesand(5)annualcostoftreatment.Basedonthisanalysis,an

accuratebasecaseassumptionforcost,revenue,andprobabilityofsuccesscanbe

determinedforeachbiosimilarcandidateandappliedtotheNPVcalculation.Based

ontheNPVresults,thehypothesiscanthenbetested.

Note:Dataneededtosupporttheselectionofthebiosimilarcandidatesaswellas

themarketanalysiswillbeacquiredviasecondarysources,suchasanalystsreports,

literature,andmarketresearchdatabases(e.g.,GlobalDataandEvaluatePharma).

27

Figure1:Casestudyexperimentationworkflow.

28

VI.

CaseStudyLimitations

Oneofthelimitationsofanevaluationbasedonfutureassumptions,suchas

anetpresentvalue(NPV)model,istheneedtopredictfuturecashflows.While

calculatedprojectionscanbemadeonfuturecashflows,theseforecastsare

contingentoncurrentknowledge–theydonottakeintoaccounttheuncertainties

ofthefuture.Asaresult,theNPVmodelissubjecttochange.Whilethesechanges

canimpactthefinalevaluation,theimpactagivenchangehasonanevaluationcan

bemitigatedbyestablishingcredibleassumptions(Bode-Greuel&Greuel,2005).

Thisisoneofthemaineffortsofthiscasestudy.Ratherthanrelyingheavilyonthe

currentsalesofareferencebiologicasapredictoroffuturecashflowsforthe

counterpartbiosimilar,thiscasestudywillanalyzethecurrentmarketoutlookof

eachbiosimilarcandidateandwilltakeintoaccountpotentialuncertaintiesthatcan

impactthefuturevalueofabiosimilarcandidate.

29

VII.

TentativeSchedule

Submission of proposal to research advisor…………………………...December 15, 2014

Proposal returned for revision…………………………………………..…January 2, 2015

Submission of final proposal…………………………………………..…January 15, 2015

Proposal accepted by research advisor……………………………...…....February 1, 2015

Thesis director agrees to serve………………………………………..….February 2, 2015

First draft returned by thesis director………………………...…………..….June 15, 2015

Revised draft completed…………………………………….…………………July 1, 2015

Revised draft returned by thesis director…………………..…………..……..July 15, 2015

Final text submitted to thesis director and research advisor………....…….August 1, 2015

Final text approved…………………………………………….…….…September 1, 2015

Final approved thesis uploaded to ETD……………………….……...….October 15, 2015

Graduation………………………………………………………………...November, 2015

30

VIII.

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32

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• ApresentationbytheFDAthatdiscussesguidelinesspecifictotheassessmentofbiosimilarity.

• OutlinesconsiderationthatshouldbemadewhenseekingFDAapprovalforabiosimilar.

Kresse,G.-B.(2009).Biosimilars-Science,status,andstrategicperspective.EuropeanJournalofPharmaceuticalsandBiopharmaceuticals,72,479-486.

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33

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34

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35