26 Jan The Coming of Biotech Generic Pharmaceuticals
CHICAGO – In a column last year, I commented on the growing generic pharmaceuticals business in the U.S. and around the world. Generic pharmaceuticals are not only big business but will continue to get even bigger. There are a couple reasons why:
1) Numerous drug patents expiring over the next couple years.
2) The increased concern in the U.S. about rising drug prices as well as the more than 40 million people in the U.S. who have no medical insurance and the growing senior citizen segment of the population.
Up to now, biogenerics (or biotech-based generic pharmaceuticals) haven’t really surfaced for a number of reasons:
1) Only a handful of biotech drugs have been on the market long enough to develop a substantial sales and physician usage base and are reaching a point of patent expiration.
2) Most biotech drugs (which are based on proteins and peptides) are quite expensive and difficult to manufacture and require either total retooling of a traditional pharmaceutical manufacturing plant or construction of a new plant for hundreds of millions of dollars.
3) The FDA process for approval of biogenerics still isn’t very clear precisely due to the way these drugs are manufactured. If a generic company has come up with bioequivalent product (meaning a company can in a human clinical trial demonstrate comparable blood levels and pharmacokinetic activity to the original drug) but has used a different way to manufacture a biogeneric, the FDA will not approve the biogeneric.
By the way, there is a dual problem for producing biotech drugs. First of all, the production of the bulk drug (known as an active pharmaceutical substance, or API), which is the initial part of manufacturing a drug, is very expensive for this class of drugs. They are costly because they are protein based and do not use a traditional chemical synthesis route (as employed by most pharmaceutical companies).
Second, the actual final manufacturing isn’t easy and requires special care. Most of these products are injectables as few if any protein-based drugs can be administered orally. They do not successfully survive the transition through the stomach in order to release a therapeutic effect in the gastrointestinal tract.
So what is at stake here? The answer is a lot! Biotech drugs are becoming big business and the future of the pharmaceutical industry. Let’s take a look:
Of the top 10 biotech drugs, eight already have generic competition either in the works or on the market. Most affected will be Amgen as not only does Epogen and Neupogen go off patent in the next few years but Amgen is the discoverer of J&J’s Procrit, which licensed the product from Amgen (which will also be going off patent).
Fortunately for Amgen, it has developed and launched the second-generation Aranesp with a full patent life. Nonetheless, about $13 billion of the above sales have generic competition in the works, which will have a significant impact on the income of those companies marketing these drugs in the coming years.
Given the high production expenses associated with biogenerics, the Indian and Chinese pharmaceutical companies are best poised to provide generic competition given their low cost structure. A key barrier for entry, however, will be FDA certification of their plants and the approval of a drug master file (DMF) by the FDA as well as approval of the process used by these companies for their API.
Biotech R&D: Where is it Headed?
Many of the above products are used to directly treat cancer or as adjunct therapy in cancer treatment. The area of oncology is receiving more and more attention and seems to be capturing the attention of many biotech companies and VCs for many strategic reasons:
1) It is a disease that has several different sub diseases for which no cure exists. In fact, most cancers are still incurable and only a few types of cancer (testicular cancer and some types of leukemias) are curable. Existing therapy only has marginal effect. There is plenty of room here for therapeutic improvement particularly considering there are more than 1 million new cases of cancer in the U.S. alone each year.
2) The FDA has recognized this dilemma and has provided a fast-track development and review process for many types of cancer therapy. This process provides not only for accelerated review of the new drug application (NDA) but also for acceptance of limited data. For example, a number of cancer drugs in recent years have been approved off phase II data without the need for doing or completing phase III trials.
3) The FDA’s orphan drug designation also plays well in oncology as most cancers have a disease prevalence under 200,000 patients (except breast, prostate and lung cancers), which allows therapies to receive such designation and provides for seven-year market exclusivity from the time of FDA approval. This waives FDA filing fees, grant support and fast-track designation.
4) Oncology clinical phase I trials often not only measure safety but drug efficacy as opposed to other therapeutic areas.
5) Most cancer drugs produce horrific side effects, which raises the need for other types of adjunct therapy to help patients deal with these side effects such as anti-nauseants and anti-anemia agents.
According to Burrill and Company, the area of oncology represents the largest therapeutic area being commercialized in biotech precisely for the reasons mentioned above.
The above is good news for cancer patients who will someday soon benefit from these new therapies. The discovery and development of many of these new therapies are funded by the National Cancer Institute (NCI), which has played a significant role in the U.S. in bringing forward new cancer products.
Unfortunately, the NCI today is a very large bureaucracy whose goal is the discovery and development of new therapies but not the commercialization of such therapy. As such, the NCI process is very slow.
Given the NCI’s role in developing and funding the early stage development of many cancer drugs and the government’s concern about the rising cost of medicines, it is conceivable that the NCI in the future could trade development help and funding for some kind of limiting of prices of such therapy.
A good example of the NCI’s embarrassment in this area is the time and amount of money spent on the development of the drug Taxol (Bristol-Myers Squibb). This drug was not going anywhere in the NCI until Bristol-Myers picked up and licensed the drug and focused its initial development in ovarian cancer and subsequently other types of cancer to a point where annual sales reached $1.6 billion before the Taxol patent expired.
The NCI recouped very little back from Bristol-Myers Squibb for all its early work.
M&A Activity Helps Drive 2003 Biotech Values
Though I promised that I had finished up my 2003 results wrap up, one area I forgot was that of M&A. The fourth quarter of 2003 saw a lot of M&A activity. Some of the biotech M&A that took place during this period involved large amounts of money – more than $16 billion – which is a good signal that Big Pharma is still having product pipeline problems and needs products and is willing to ante up big bucks.
Unfortunately, two vibrant Midwest biotech companies – Cima Labs and Esperion Therapeutics – were taken out in this process.
This week, I will be winding my way through the second life science analyst conference of the year (the Piper Jaffrey Conference in New York City) and will be able to personally bring your back the mood of the sector. See you next week!
Michael S. Rosen is president and CEO of Barbeau Pharma and a founder and board member of the Illinois Biotechnology Industry Organization (IBIO). He can be reached at email@example.com. This article has been syndicated on the Wisconsin Technology Network courtesy of ePrairie, a user-driven business and technology news community distributed via the Web, the wireless Web and free daily e-mail newsletters. They can be found at www.eprairie.com.
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