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Many industry observers have noted the twin threats to the pharmaceutical industry of low R&D productivity and blockbuster patent expiries are forcing pharmaceutical companies to evolve from a primary-care sales and marketing model to a mixed primary-care and specialist model, the latter being the frequent domain of biotechnology products.

To give the pharmaceutical industry its due, it is embracing this evolution. Last year, in a closely watched move, AstraZeneca acquired the US biotech company Medimmune and started the trend that this year has swept ImClone into the arms of Lilly, and Genentech into discussions with its majority owner, Roche. These three transactions are far bigger than the typical merger and acquisition fare that for more than a decade has, and continues to, punctuate the biotechnology sector.

When you add this continuing undercurrent of M&A to the predominantly good news that has recently come out of the third-quarter earnings announcements, there does not appear to be a cloud in the sky for biotech. Well, there is one: the spectre of biogenerics and biosimilars. The pharmaceutical sector has been forced to evolve because of the expiration of patents protecting their best-selling molecules from cheaper generic competition, and some are concerned this may eventually happen to the biotechnology sector too. All the indications are there as president-elect Barack Obama’s healthcare policy first centres on healthcare for all, and second on cost containment. In order to have both of these initiatives there will be greater focus than ever on generic pharmaceuticals, but the spotlight in the first term of the 111th congress will also fall on the possibility of generic biological drugs.

Most pharmaceutical drugs are small, uncomplicated molecules, easy to make if you employ some good chemists and easy to register if you employ some good regulatory people, since the applications don’t require clinical trials. A biogeneric medicine, however, is a much bigger and more complicated molecule, usually made in cells in a fermenter rather than a test tube. Biogenerics don’t require clinical trials, but biosimilars do. Some biosimilars have been approved in Europe, but to date they have not been commercially successful, probably because few specialist doctors know about them. That is one of the issues going forward, as two of the things generic companies hate the most are conducting expensive clinical trials and promoting their medicines to doctors.

It is safe to assume that the next US congress and president will pass a biogenerics bill into law, but that will be just the start of a difficult process. Technically, it seems to be more difficult as Genentech and Genzyme have found. Both had successful biological medicines, and both had to scale up their processes at sites different to where original medicines were produced. In both cases, the new biological molecules were slightly different from the originals, so the US Food and Drug Administration made both companies conduct clinical studies to show that the original and copy had the same effects. Now if the same company cannot make its own biological medicine in its own plant, with the same staff and the same cells, how on earth can a generic company with none of these?

Biogenerics are a small cloud and the law will be passed, probably in 2009. However, it seems that when AstraZeneca, Lilly and Roche went shopping for a cure to their patent-expiry issues, the acquisition of biological medicines was just what they were looking for.

Andy Smith is manager of the Axa Framlington Biotech fund