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Is This New Market the Biggest Investment Idea of the Decade?

The market for biosimilar medicine could skyrocket to $20 billion in the coming years.

Over $100 billion in annual sales for top-selling biologic medicines will soon be up for grabs, and that’s leading to a gold rush to develop biosimilars. With the biosimilar market poised to eclipse $20 billion as early as 2020, many investors are watching this sector closely. Read on to learn more about biosimilars and how they may reshape medicine.

First, some background

In the past, the majority of drugs were small-molecule drugs manufactured using chemical synthesis, or the making and breaking apart of chemical bonds. Because this method of manufacturing medicine is easily repeatable, expiring patents on small-molecule drugs led to a quick flood of generic copycats.

Today, generic drugs account for 80% of all prescriptions written and they produce tens of billions of dollars in annual sales for drugmakers like Teva Pharmaceutical and Mylan NV.

Increasingly, however, more drugs are being developed using a far more complex process that relies on biologic processes involving living organisms like yeast. These complex large-molecule medicines, or biologics, can’t be exactly replicated like small-molecule drugs and as a result, biologics have faced limited competition when their patents have expired.

In 2014, the world spent $289 billion on biologic medicines. In 2019, Deloitte estimates that global spending on biologics could reach $445 billion as biotech’s share of worldwide prescription drug and OTC sales increases from 23% to 26%.

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IMAGE SOURCE: DELOITTE’S GLOBAL LIFE SCIENCES OUTLOOK 2016

Changing times

Advancing technology and regulatory support, however, is breaking down barriers that have kept a lid on drugs that work similarly to biologics but are inexact copies of them, known as biosimilars. That could mean that over time, billions of dollars in spending shifts from biologics to biosimilars.

Pfizer, Inc. (NYSE:PFE), one of the leaders in biosimilar development, estimates that brand-name biologics with sales in excess of $100 billion will lose patent protection in the coming years, and that approvals of biosimilars could result in the biosimilar market growing from only a few billion today to $20 billion in 2020, including $8 billion in sales in the United States alone.

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IMAGE SOURCE: PFIZER.

It’s anyone’s guess if Pfizer’s estimate will prove accurate, but investors should start getting more clarity on the market potential of biosimilars soon, as the FDA is already approving them.

In April, the FDA gave Pfizer the go-ahead to market Inflectra, a biosimilar to Remicade, Johnson & Johnson’s (NYSE:JNJ) top-selling drug for autoimmune diseases, including rheumatoid arthritis. Remicade is Johnson & Johnson’s best-selling drug, with U.S. sales of $4.4 billion last year and $1.2 billion in the second quarter.

Pfizer hasn’t launched Inflectra in the U.S. yet because it’s been waiting for a key patent decision from Federal courts. However, courts weighed in against Johnson & Johnson last month, and that means a launch should be possible before the end of this year.

Novartis (NYSE:NVS), Biogen (NASDAQ:BIIB), and Amgen (NASDAQ:AMGN) are also leveraging their experience with biologics to craft biosimilars that are — or will soon — compete for market share with the planet’s best-selling biologics.

Novartis’ Sandoz unit won FDA approval for a biosimilar to Teva Pharmaceutical’s multibillion-dollar multiple sclerosis drug Copaxone last year. Sandoz has also notched FDA approval for a biosimilar to the anemia drug Neupogen and the rheumatoid arthritis drug Enbrel. Sandoz’s Copaxone and Neupogen biosimilars are already available and a launch of its Enbrel biosimilar should happen soon.

Meanwhile, Biogen is teamed up with Samsung Bioepis. In the past year, the two have already secured approval of biosimilars to Remicade and Enbrel in Europe.

Amgen recently won unanimous support from a FDA advisory committee for the eventual approval of a biosimilar to AbbVie’s $14-billion-per-year autoimmune disease drug, Humira. A launch timeline for Amgen’s Humira biosimilar, however, depends on the timing of an official FDA green light and ongoing patent litigation between it and AbbVie.

Looking ahead

Investors aren’t wrong to think that there’s a significant market opportunity ahead for biosimilar drugmakers, but there are risks that still need to be considered. Since biosimilars aren’t identical to the brand name drug, pharmacists won’t automatically replace prescriptions written for the brand-name with them, which is something they do with generic alternatives to small-molecule drugs. Also, because biosimilars’ manufacturing process is complex, it’s far more expensive for drugmakers to produce them and that means that they’ll carry prices that are higher than some might’ve hoped. If the cost savings offered by biosimilars aren’t great enough, then doctors may continue prescribing the brand-name drugs they’ve become accustomed to.

Nevertheless, biosimilars’ potential is huge and most of the major players are large, diversified multinationals that are somewhat insulated against a possible biosimilar bust. Since the upside associated with biosimilars is great and there are other compelling reasons to own drugmakers, including a larger and longer-living population, I think sprinkling some biosimilar drugmakers into your portfolio could prove to be profit-friendly over the next decade.

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Todd Campbell has no position in any stocks mentioned. Todd owns E.B. Capital Markets, LLC. E.B. Capital’s clients may have positions in the companies mentioned. Like this article? Follow him on Twitter where he goes by the handle @ebcapital to see more articles like this. The Motley Fool owns shares of and recommends Biogen and Johnson and Johnson. The Motley Fool recommends Mylan and Teva Pharmaceutical Industries. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

 

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Drew Limsky

Drew Limsky

Editor-in-Chief

BIOGRAPHY

Drew Limsky joined Lifestyle Media Group in August 2020 as Editor-in-Chief of South Florida Business & Wealth. His first issue of SFBW, October 2020, heralded a reimagined structure, with new content categories and a slew of fresh visual themes. “As sort of a cross between Forbes and Robb Report, with a dash of GQ and Vogue,” Limsky says, “SFBW reflects South Florida’s increasingly sophisticated and dynamic business and cultural landscape.”

Limsky, an avid traveler, swimmer and film buff who holds a law degree and Ph.D. from New York University, likes to say, “I’m a doctor, but I can’t operate—except on your brand.” He wrote his dissertation on the nonfiction work of Joan Didion. Prior to that, Limsky received his B.A. in English, summa cum laude, from Emory University and earned his M.A. in literature at American University in connection with a Masters Scholar Award fellowship.

Limsky came to SFBW at the apex of a storied career in journalism and publishing that includes six previous lead editorial roles, including for some of the world’s best-known brands. He served as global editor-in-chief of Lexus magazine, founding editor-in-chief of custom lifestyle magazines for Cadillac and Holland America Line, and was the founding editor-in-chief of Modern Luxury Interiors South Florida. He also was the executive editor for B2B magazines for Acura and Honda Financial Services, and he served as travel editor for Conde Nast. Magazines under Limsky’s editorship have garnered more than 75 industry awards.

He has also written for many of the country’s top newspapers and magazines, including The New York Times, Washington Post, Los Angeles Times, Miami Herald, Boston Globe, USA Today, Worth, Robb Report, Afar, Time Out New York, National Geographic Traveler, Men’s Journal, Ritz-Carlton, Elite Traveler, Florida Design, Metropolis and Architectural Digest Mexico. His other clients have included Four Seasons, Acqualina Resort & Residences, Yahoo!, American Airlines, Wynn, Douglas Elliman and Corcoran. As an adjunct assistant professor, Limsky has taught journalism, film and creative writing at the City University of New York, Pace University, American University and other colleges.