Will the Biosimilars Market Take Off? The Next Opportunity for CXOs and Pharma Companies Going Abroad?

Recently, the U.S. Senate unanimously passed a bill aimed at reducing patent thickets held by large pharmaceutical companies and increasing market competition. The bill, initiated by Senators John Cornyn (Republican-Texas) and Richard Blumenthal (Democrat-Connecticut), limits the number of patents that pharmaceutical companies can assert in infringement lawsuits. However, it does not include the industry practice of product hopping, which replaces older products with new treatments covered by later-expiring patents.

In addition to Cornyn and Blumenthal's bill, Senators Peter Welch (Democrat-Vermont), Mike Braun (Republican-Indiana), and Amy Klobuchar (Democrat-Minnesota) introduced similar legislation in January 2024. Their bill aims to "streamline drug patent litigation" and promote competition to reduce drug prices. This bipartisan bill would allow pharmaceutical companies to assert only one patent per lawsuit. These legislative efforts may help promote competition for generic drugs and biosimilars, thereby lowering their costs.

High Drug Prices Give Rise to a Vast Biosimilars Market, but Patent Thickets Are Hard to Overcome

The backdrop for the aforementioned legislation is complex, but the primary reasons focus on the high cost of drugs in the United States and limited market competition.

For many years, the high drug prices in the U.S. have been primarily due to the enormous costs of innovative drug research and development, complex regulatory approvals, and a lack of sufficient market competition. In recent years, the U.S. biopharmaceutical market has gradually become the largest in the world, with a market size exceeding $500 billion in 2023. However, competition within this market remains relatively insufficient. Biologic drugs account for more than half of the overall drug market, but fewer than 20 biosimilars have been approved for sale.

The complexity of biologic drug patents creates high barriers to entry, further suppressing market competition. Biosimilars, which are generic versions of original biologic drugs, offer similar efficacy and safety but at lower prices.

Data shows that biosimilars in the U.S. market are priced 15% to 30% lower than the original biologic drugs, significantly reducing the financial burden on patients. The promotion of biosimilars is expected to improve drug accessibility, stimulate market competition, and help lower overall drug prices. According to IMS statistics from 2016, generic drugs accounted for nearly 90% of total prescriptions in the U.S., yet their sales accounted for only about 20% of the entire pharmaceutical market.

The government and ruling party have a practical need to lower drug prices. Given the high prices of innovative drugs, encouraging the promotion of biosimilars is a viable option. Market forecasts predict that by 2025, the U.S. biosimilars market will reach $20 billion, with an annual growth rate of over 20%.

Global CDMOs and Pharmaceutical Companies Join Forces to Accelerate Expansion

To launch biosimilars in the U.S., companies must obtain an Abbreviated New Drug Application (ANDA). The ANDA is the FDA's approval document for biosimilars, requiring proof that the biosimilar has the same active ingredients, dosage form, strength, quality, performance characteristics, and intended use as the original drug. Generic drugs approved through ANDA can be marketed after the original drug's patent expires.

For Contract Development and Manufacturing Organizations (CDMOs) aiming to establish a pipeline in the biosimilars field, the post-patent cliff market is undoubtedly a "battleground," and the ANDA is the entry ticket to this competition.

Globally, established CDMOs like Catalent Pharma Solutions hold three ANDA approvals, including prescription valproic acid capsules and over-the-counter cetirizine hydrochloride and naproxen sodium. Emerging CDMOs like Samsung Biologics have also been securing numerous ANDA approvals, with eight listed approvals, including prescription drugs like cefazolin sodium and ceftiofur hydrochloride. Samsung Biologics has made significant strides in biosimilars, with their adalimumab biosimilar approved for treating various autoimmune diseases.

Traditional big pharmaceutical companies are also focusing on the biosimilars sector to replace competitors' products or complement their own drugs post-patent cliff. Eli Lilly has an impressive 260 ANDA approvals, while Merck has 31.

In terms of Chinese biosimilars entering the international market, the earliest ANDA approval was obtained by Huahai Pharmaceutical's benazepril tablets in 2009, marking a breakthrough. Since then, more Chinese generic drug companies have recognized the opportunities in the U.S. generic drug market. From 2009 to 2011, the annual number of ANDA approvals obtained by Chinese companies was in the single digits, increasing to over ten annually from 2012 to 2015. The number rapidly climbed post-2016, reaching approximately 70 in 2018, and around 80 annually since 2019.

By the end of 2023, the Chinese companies with the most ANDA approvals included Fosun Pharma, Jangsu Hengrui Medicine, Qilu Pharmaceutical, HEC Pharm, and Hisun Pharmaceutical.

Fosun Pharma, a representative of internationalized local companies, has global revenues. In 2017, Fosun Pharma successfully acquired Indian pharmaceutical company Gland Pharma for nearly $1.1 billion. At that time, Gland Pharma and its partners had over 260 ANDA approvals in the U.S. This acquisition enabled Fosun to obtain formal approvals through Gland Pharma.

Regarding overseas revenue, Hengrui Medicine reported $617 million in overseas revenue in 2023, while HEC Pharm reported $295 million in 2022. Huahai Pharmaceutical's 2023 semi-annual report disclosed 79 ANDA approvals (excluding tentative approvals) as of June 2023. During the reporting period, it received four ANDA approvals (including tentative approvals) and completed two new product filings. Overseas operations significantly boosted the company's performance, with overseas business revenue reaching approximately $4 billion in 2022, accounting for half of the company's total business.

Leading CDMO WuXi AppTec has secured over 20 ANDA approvals in the U.S., primarily for solid oral dosage forms and sterile injectables. Its generic drugs include irbesartan tablets, used for treating hypertension.

Chinese Pharmaceutical Companies Ready to Penetrate the U.S. Biosimilars Market

In recent years, the biosimilars market has become a popular field for Chinese manufacturers seeking to expand internationally. With the reduction of patent thickets held by major U.S. pharmaceutical companies, Chinese biosimilars are accelerating their overseas market deployment, presenting a significant opportunity.

On December 15, 2023, the CDE (Center for Drug Evaluation) website announced that Bayer had submitted a market application for Aflibercept intravitreal injection, which was accepted. Just three days later, on December 18, the NMPA (National Medical Products Administration) website showed that Qilu Pharmaceutical's biosimilar of Aflibercept had been approved for market.

Chinese pharmaceutical companies are moving quickly in the biosimilars field, with numerous significant updates this year. On April 26, 2024, Henlius Biotech announced that its drug Hanquyou (Trastuzumab) had been approved for marketing in the U.S. for the adjuvant treatment of HER2-positive breast cancer, metastatic breast cancer, and HER2-positive metastatic gastric or gastroesophageal junction adenocarcinoma. It had previously been approved by the European Commission and the NMPA in July and August 2020, respectively.

Shortly thereafter, Bio-Thera's tocilizumab biosimilar also received FDA approval in the U.S. for moderate to severe rheumatoid arthritis (RA), polyarticular juvenile idiopathic arthritis (pJIA), and systemic juvenile idiopathic arthritis (sJIA).

In 2024, Qilu Pharmaceutical's biosimilar of Trastuzumab (QL1701) was approved by the NMPA for the treatment of HER2-positive metastatic breast cancer. Around the same time, Qilu's ranibizumab biosimilar also received approval from the European Medicines Agency (EMA) and the UK.

In early July 2024, Hengrui Medicine's global first generic liposomal bupivacaine injection was approved for marketing in the U.S. The global sales of bupivacaine liposomal formulations were approximately $538 million. This "first generic + mid-sized variety" boosted Hengrui Medicine's overseas revenue. The recent significant fluctuations in Hengrui Medicine's stock price were influenced by this positive overseas news.

Despite the optimistic outlook, there are important details to consider:

Post-First Generic Drug Market Saturation: In the U.S., first generic drugs enjoy a 180-day exclusivity period, during which their prices can be up to 70% of the original drug's price. After this period, intense competition begins. For example, the first biosimilar of the cancer drug Trastuzumab launched in 2019 was priced only 15% lower than the original drug. By 2022, the fifth biosimilar was priced 58% lower than the 2019 original. Similarly, biosimilars of the autoimmune drug Adalimumab launched in recent years are priced 85-90% lower than the original, yet by February 2024, their market share only increased from 2% to 4%.

Falling Generic Drug Prices: With more generic drug manufacturers entering the U.S. market, prices are continually decreasing. On average, generic drugs in the U.S. are priced at only 15% of the original drug, with some products dropping below 10%. Whether companies can remain profitable in such a competitive environment depends on their strategies.

Product Hopping: It is important to note that product hopping, where an original drug company introduces a new drug with slight modifications (such as dosage or form) just before the patent cliff, securing an additional 20-year patent protection and thus preventing biosimilar entry, is not covered by the recent legislation. Whether large pharmaceutical companies will continue to use product hopping to maintain market dominance remains to be seen.

Chinese pharmaceutical companies are poised to capitalize on these market dynamics, but success will require navigating intense competition and strategic innovation.