3 Biologic asset revaluation: The biologic drug model, both in pre‐commercialization and commercialization stages is now well understood and proven to be effective. Confidence in the growing role that biologics are playing in the pharmaceutical market is impacting on company acquisition trends.
4 Biosimilars bring value: We are entering a transformative period where the largest selling biologics will soon face biosimilar competition in all major international markets. Legal opinions and regulatory guidelines adopted during this initial phase of patent loss will have lasting impact beyond 2020.
5 Competition and market environment: While previously many new biologics were first‐in‐class to go to market, now many biologics are entering the market competing with other biologics with the same mechanisms of action, increasing the ferocity of market competition. As third‐party payers find they have increasing choice in many therapeutic areas, such as autoimmune diseases, competitive dynamics for biologics increasingly resemble those of mature small molecule drug areas and payers place pressure on prices and discounts.
These five market trends will transform the biologic space in the next five years. Market players with interest in biologics face both challenges and opportunities in this new era; what is clear is that the biologic market will be far more complex and evolve far more rapidly than is the case currently.9
2.4 Player Archetypes in a Maturing Market
These biologic maturation events will have differing impact depending on individual player's strategic position.
2.4.1 Established Biologic Players
The largest biologic players are not just large within the biologic drug space, but the scale of their biologic drug success has made them global pharmaceutical leaders. Examples are Roche, Sanofi, and Amgen. These players face pressure to remain key leaders in their therapeutic areas of focus:
Revenue erosion. The greatest challenge is the threat of biosimilars eroding revenues. Follow‐on biologics such as PEGylated filgrastim and modern insulins have been successful in capturing and protecting franchise revenue in the past. However, recent follow‐on launches such as those in the insulin space have not performed as well as expected or predicted, leaving many large biologics vulnerable to biosimilar erosion. The current payer environment is not as open to innovation on the franchise model. Follow‐on innovation remains important for improving patient outcomes, but to achieve wider adoption, they must also be designed with the payer's perspective. Roche's subcutaneous formulation of Herceptin® in European markets is an example of when follow‐on can succeed. The new formulation reduces treatment time from 30–90 minutes to 5 minutes, saving time for the patient and bed/staff resources for the clinic. It has taken 28% of human epidermal growth factor receptor 2 (HER2) franchise sales and their share is growing. HER2‐positive breast cancers tend to be more aggressive than other types of breast cancer. They are less likely to be sensitive to hormone therapy, though many people with HER2‐positive breast cancer can still benefit from hormone therapy. Along with the other HER2 follow‐on Roche products, only 43% of the franchise in Europe is currently vulnerable to biosimilar competition.
Greater competition. Biologic drug classes such as growth factors, insulins, and anti‐TNFs have several comparable products available and are therefore highly competitive areas. It took many years for these competitive environments to develop and for many indications particularly within oncology, the market remains relatively uncompetitive. However, this lack of competition is not an intrinsic property of the biologic market; it is a consequence of their relative novelty. A larger pipeline of biologics has meant that many players are developing treatments for the same indication, sometimes with the same mechanism of action. Previously validated disease/treatment pathways also reduce clinical trial risk, facilitating “fast follower” strategies. The result is that the window of opportunity for a first‐to‐market biologic will be shorter, with less market differentiation. The more competitive future biologic market will impact the return on investment for manufacturers. This can already be seen in many of the recent biologic launches such as immuno‐oncologic, respiratory biologics, and PCSK‐9 inhibitors.
Maintaining leadership. In times of high innovation output, established players are frequently challenged by new competitors entering their field. These companies can often be more dynamic and agile, making and acting on decisions quickly. Bristol‐Myers Squibb (BMS) is an example of a company that broke into a leadership position through partnering early and investing heavily. BMS moved up from rank 11 in oncology to rank 3 between 2011 and 2016 (DRG, Company & Drugs, April 2016), establishing itself as a long‐term leader in immuno‐oncology and a partner of choice for biotechs. Similarly, Alexion was founded as a small biotech in 1992, but has now become a top 30 biologic player, thanks to its focus on rare diseases. Large established players need to stay on the cutting edge of biologics R&D or risk losing leadership within their space. Business development will remain an important source of this innovation, but the challenge will be to keep it cost‐effective given the greater future competition in the market.10
2.4.2 Niche Biologic Innovators
Small biotechnology companies are the lifeblood of the biologic drug industry. The positive market environment for biologic products has placed these companies in a position of strength with respect to access to capital. This has given some the ability to push through development while retaining autonomy. However, the gains from deals have never been greater. Licensing leading products while keeping earlier pipeline and the scientific talent is a popular compromise. Our understanding of the science behind biological technologies is improving, and investor confidence has increased. However, the fact remains that many novel technologies pursued by biotechs will be high‐risk areas of research.11
2.4.3 Players Looking to Enter the Biologic Space
These are companies that predominantly invested in small molecule research and did not previously consider biologics as key to their strategies. Large pharmaceutical companies such as AstraZeneca and GlaxoSmithKline have not historically embraced the biologic wave. Many midsized innovative companies also fall under this category since they have specific disease area focus, often in therapy areas with little biologic use. Biologic therapies are becoming relevant in a greater number of disease areas. These companies will be looking to extend disease area leadership by following opportunities for investment in biologic products and biotech capabilities. For example, AstraZeneca, one of the leading companies in the respiratory space with its small molecule, Symbicort® franchise, is now poised to enter the respiratory biologics space with benralizumab.
The challenge for these incoming biologic players will be to secure deals for the most promising pipeline candidates. They will be competing with other big pharma for increasingly sought after and expensive assets, with disadvantages in areas such as experience, biologics manufacturing infrastructure, and capital in the case of midsized companies. However, these midsized companies do have a greater capability for focus, particularly in niche therapeutic areas and technologies.12
2.4.4 Biosimilar Players
Biosimilar players are presented with an opportunity to take sales from 15 of the top 20 biologics in most developed countries by 2020, a market value greater than US$80 billion (DRG, Company & Drugs, April 2016). Investment barriers have meant that these players will face fewer competitors relative to the small molecule generic market. However, the competition that is present has formidable resources to draw from. Leading players have been gaining experience taking biosimilars through regulatory approval. Their legal teams/partners have been setting precedents while clearing patents to prevent at‐risk launch. This experience will be invaluable when preparing launches for the many biosimilar targets that will be presently moving forward. Some players such as Novartis/Sandoz, Merck & Co, and Amgen will be playing in both the originator/innovator and the biosimilar space. These hybrid players can leverage their expertise in biologic