Saturday, April 21, 2007
If things had gone as Habil Khorakiwala planned five years ago, Wockhardt would have been riding high on the launch of India’s first biotech copycat in Europe by now. But neither the Rs 1,729-crore Wockhardt, based in Mumbai, nor any other Indian company has sent a biotech copy to the West yet. Khorakiwala, its chairman, and a pioneer of sorts in this space, (See ‘Wockhardt’s Biotech Bet’, BW, 23 October 2003) says it is going to be a “long haul” for any company with similar ambitions.
Welcome to the world of the biotech copycat makers, or ‘biosimilars’. In the first round of their battle against innovators such as US-based Amgen and Genentech, who currently control the $50-billion world biotech market, the first round has gone to the incumbents. Biologics began losing patent protection in the West in the early 2000s. But ambivalent regulators and innovator lobbying has delayed approvals. “We were wrong in our estimation. We thought it would happen by now,” says Prashant Tewari, managing director, USV, also from Mumbai. USV made a foray into this area seven years ago. Wockhardt, who began a decade ago, has biosimilars only in India and emerging markets.
A lot is at stake for the clutch of companies that has sunk many crore rupees in labs and production facilities. They have had to support development and manufacturing teams for longer. The delay has bought innovators — with billions of dollars in sales at stake — time to come up with defences. They have nudged regulators in western Europe to raise the bar for approving copies, adding substantially to the cost. In the US, the world’s largest pharma market, innovators are pulling out all stops to sway Congress in favour of high barriers to entry. All this could throw the economics of the business out of gear. “It’s not going to be cheap,” admits Jayaram Chigurupati, chairman and managing director of Zenotech Laboratories, a Hyderabad-based start-up.
But there is some light at the end of the tunnel. Europe has guidelines to approve copies of four biologics with sales of $7 billion. Also, this February, the US began debating a Bill that should define an approval pathway either this year, or by end-2008. Now, the earliest that an Indian biosimilar can meet regulations and hit western shores is 2010.
There is an important difference between biologics and chemicals — the living organism as a source. A generic is made by mixing chemicals, the starting point for a biologic is a cell. A human gene that produces, say, a particular protein such as insulin (which regulates blood glucose) or EPO (which produces red blood cells), is inserted into the cells of a fast-reproducing organism (bacteria or yeast). This genetically engineered organism is called the ‘host’ in labspeak. The host cells are coaxed to produce abnormally large quantities of that protein in controlled conditions. The protein is extracted, purified, and put in vials or syringes. Drugs made this way treat serious medical conditions such as diabetes, multiple sclerosis, and severe anaemia. They are potent, and expensive.
By their nature, biologics behave less predictably. The molecules are several-fold larger than chemical ones, and less stable. Unlike in chemicals, the manufacturing process, and even in some cases, the packaging, has a bearing on the end-product. “Biologics can frequently bind themselves to form pairs or aggregates, can change their shape over time or with minor conditions can interact with materials in their containers and packaging,” says Jay P. Siegel, group president (R&D for biotech), New Jersey’s Johnson & Johnson (J&J), in his testimony to a US Senate Committee hearing the issue. Innovators like J&J argue that these changes could alter its effects on the human body, sometimes fatally.
Imagine a situation where a drug meant to cure you, does just the opposite. J&J cites its own example. A small change in the stabiliser used in its blockbuster EPO Eprex in Europe led some patients to develop an immune reaction where the bone marrow refuses to produce red blood cells. The stabiliser had reacted with the rubber stoppers used in the packaging to release substances, which triggered the reaction, it says.
Now, copycats will use different processes than innovators, for reasons including the web of patents still covering process technologies. Sometimes they also use different organisms due to cost and capability. Take Bangalore-based Biocon’s insulin, which is produced from a type of yeast that neither Eli Lilly nor Novo Nordisk, the duopoly that controls the world insulin market, has used. This adds another variable to a dynamic situation. In the same testimony, Siegel gives another example of changed cell lines altering a product’s effects (in some cases to make it better, but you get the drift). The upshot is that the final ‘copy’ of a biotech drug will be ‘similar’ to, but not the same, as the original in appearance, unlike a generic. This is true of all biosimilars, but the degree of difference differs from product to product. The key is whether this difference is enough to substantially alter its effects.
This difference between a chemical and a biotech drug is why it has taken European regulators five years to get to this stage. They now state that elaborate tests are the only way to rule out potentially fatal mistakes — a la Eprex. “The generic approach is… very unlikely to be applicable to biologics: biosimilars are not biogenerics,” said Nicolas Rossignol, administrator of the European Commission Pharmaceuticals Unit to the same Senate Committee.
Indian companies were aware that a biosimilar would need more tests than a chemical generic. But the EU rules show exactly how much more they will have to stump up. Here is an idea. A legal knock-off of even a chemical drug needs human tests. Called ‘bioequivalence’, they show that the copy works in the body in the same way as the original. But they do not take much doing — usually under 30 healthy volunteers on the generic are observed for two weeks, at a cost of roughly $150,000 (Rs 66 lakh).
Now compare this with biosimilars. Depending on who you talk to, and which product, pre-approval tests could cost between $10 million and $40 million (Rs 44 crore and Rs 176 crore), touching $60 million (Rs 264 crore) for a particularly complex one used in more than one medical condition. These tests are safety and efficacy studies like those conducted on new drugs. They take several months and involve hundreds of patients. One example: USV has estimated its trial size for a human growth hormone to be two batches of 120-150 patients in Europe alone. One batch takes the original, the other the biosimilar. As Zenotech’s Chigurupati points out, even buying the innovator product in Europe for the tests adds to the cost.
There is more. The size of the human trial — even permission to start one — hinges on how well you are able to prove in detailed lab and animal tests that this is the same product. Take Zenotech’s filgrastim (which stimulates white blood cell production). Europe has demanded a study on monkeys — more expensive than rodent studies — which costs $2 million-3 million (Rs 8 crore-13 crore). Or OFSH, an infertility hormone. Mumbai-based Bharat Serums & Vaccines has spent $500,000 (Rs 2.2 crore) on preclinical testing, and at the time of writing was still waiting for European permission to start trials. An ‘expensive’ bioequivalence study for a generic costs that much. The double whammy is that being in India does not provide a cost advantage. Indian labs have never done this kind of detailed pre-clinical testing for generics. The biosimilar also has to be tested on a Caucasian population.
According to research firm CRIS-Infac, in 2004, trials would have cost anywhere between $3 million and $26 million (Rs 13 crore and Rs 114 crore). But now, companies say the costs for some products begin at the higher end of that range. “For Indian companies, the cost of goods is not a problem if you have a good technology. But what about the cost of investment?” asks Tewari of USV.
The answer is simple: this has to show up in the final price. It is widely expected that discounts will be limited to 20 or 30 per cent of the innovator price. (For comparison, generics often launch at a discount of 90 per cent.) A lower discount may bode well for profit margins. But it is also not difficult to match. “Innovators will continue to have a biggish role to play in the market,” says Nitin Agarwal, pharma analyst at domestic brokerage SSKI. This has already happened in the developing countries, much to the chagrin of biosimilars companies. Eli Lilly and Novo Nordisk slashed prices by 40 per cent in India at the whiff of Wockhardt’s imminent entry into the insulin market. In Latin America, one innovator reduced prices by a quarter when it found that Wockhardt was competing for the same tender.
How To Market It?
As companies grapple with the testing requirements, there is another challenge brewing: marketing. In most western markets, with some exceptions, innovator brands can be switched at pharmacies for cheaper generics. Generics makers work on shoestring sales budgets. In the US, for instance, less than 10 sales managers can cater to all the large national distribution chains such as CVS and McKesson. In biosimilars, this is unlikely. Europe does not allow it right now, and the US drugs regulator says it may not either. That makes the going tougher. Doctors do not change brands easily. It gets doubly difficult to convince them against the backdrop of safety and similarity concerns.
There is a real life example. In mid-2006, Germany’s Sandoz launched its human growth hormone Omnitrope, the first biosimilar to enter the EU. “Sales are developing with a slow uptake… there needs to be a lot of education and training for doctors and patients,” says a Sandoz spokesperson. Coming from the world No.2 in generics, and an arm of Switzerland’s Novartis AG, an innovator company, this does not sound encouraging.
After all this, the product may just not pick up. Consider the competition. According to one estimate, there are 14 EPOs, 18 GCSFs and 12 human growth hormones being developed worldwide, as these drugs have been off-patent for some time. Depending on the product, Indian companies could be pitted against world No.1, Israel-based Teva, or Sandoz with far deeper pockets. Others from Asia, such as Korea-based LG Chemicals, are working through partnerships. Now, put that level of competition together with the fact that more than one innovator is often seen in any market. For example, J&J, Switzerland-based Roche, and Amgen all want a share in the European EPO market.
In the meantime, all EPOs as a class have come under the scanner of late for serious side-effects. “Companies have to ask themselves whether by the time they get there, will there be an EPO market at all?” says Utkarsh Palnitkar, industry leader (health sciences) at Mumbai-based consultancy Ernst & Young.
UK brokerage Nomura Code Securities says that sales from the first wave of products will be too low to justify the investments made. They are already being substituted by second-generation products of innovators. Like improved, sustained release versions implying fewer injections or infusions. “The first-gen products are not where the real rewards are going to be,” it says. It points out that companies have to stay the course until other classes of products open up. Like monoclonal antibodies, used in treatments from cancer to arthritis, which are overtaking EPO as the largest group of on-market biological products. Competition, right now, appears limited.
But to wait it out till the next wave beyond 2010 will need not just commitment, but deep pockets. Can they hang in there? Some might do so, easily. For example, Mumbai’s Reliance Life Sciences, which has pumped in ‘several hundred crore’ in R&D and production facilities in Navi Mumbai, has the backing of India’s largest private sector enterprise, Mumbai’s Reliance Industries. But others could be stretched. Wockhardt has invested Rs 150 crore — almost equal to last year’s net profit — in a manufacturing facility capable of meeting 15 per cent of global requirements of some biologics. Khorakiwala will not give the latest numbers, but four years ago it had already spent roughly Rs 50 crore on R&D. Wockhardt also has other funding commitments like generics, and new drug discovery. Zenotech, which has wagered several times its revenues in labs and factories, is a start-up.
Agarwal of SSKI says that given the profile of the Indian companies — either small or medium-sized — most are likely to go with strong western partners with financial heft. Biocon has a partner for taking insulin to the US, Zenotech has got India’s top drug maker Ranbaxy to bankroll trials and marketing in Europe for one product, and Bangalore’s Avestha Gengraine Technnologies is in a joint venture with number three Cipla of Mumbai. With the true cost coming to the fore, more may follow suit. “No Indian company is going to take the chance of putting over $20 million in a product when there is a probability over final approval,” Agarwal says. This could mean splitting profits and sharing control — but staying in the race.
Make no mistake, the reasons that spurred investments in this area are not flawed. Biologics contribute substantially to the innovator drug industry’s pipeline. In 2005, 20 of the 35 new drugs awaiting US approval were biotech ones. This means more biotech drugs will go off-patent in the coming years. Moreover, biotech drugs with sales of $23 billion have already lost patent protection since 2001.
For some like Wockhardt, it provides an attractive add-on to the commoditised generics business. “Biotech was a strategic move, and there is no second thought on that,” says Khorakiwala. His company has now chosen insulin over EPO as its first product for Europe. Though smaller, insulin is simpler and cheaper to tailor for the West. For USV, Zenotech and Biocon, with bigger ambitions of making completely new biologics, it makes sense to cut their teeth on the biosimilars market first. It also generates a revenue stream until that takes off. “Biology is fundamental to the drug discovery chain. That is our motivation,” says Tewari.
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