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Biosimilars – Slow US offtake not a concern
Biosimilars offtake in US has been perceived to be lower despite the fact 15 biosimilars have been approved by FDA till end CY18 with three more approvals in first four months of current calendar. This is in sharp contrast to an extremely supportive macro in which biosimilars by definition would be helpful in lowering out of pocket costs for consumers. However, we reckon that such a perception built around biosimilars has been on basis of a few data points which primarily include lackluster performance of two Remicade biosimilars. We believe it would be inaccurate to extrapolate the ongoing low penetration of biosimilars as a template which can be then extended to all upcoming launches. Indeed, one can argue that ramp up of Basaglar, a biosimilar to Sanofi’s Lantus from 20% to 25% in prescription volumes and 300bps rise to ~19% in value share over a span of less than a year is a solid counter example to the prevailing perception. Moreover, of the 20-odd approved biosimilars, about half of them have not yet been launched as in several cases, innovators have entered in to settlement agreement with some of the oncology and immunology biosimilar manufacturers which precludes their launches before agreed timelines. Another interesting nuance can be seen with launch of Neulasta biosimilars which, within a year of launch, have captured over ~25% prescription volume share of the syringe market; albeit, innovator still accounts for ~60% volumes due to shift to follow-on auto injector kit. In a sense, we believe there is just not enough history of biosimilar sales available, unlike in small molecules, which can be used to conclude a definite lack of progress. Albeit concerns will be raised on Adalimumab (about 6 players have settled) and Pegfilgrastim (at least 4 in pipeline) and it remains to be seen how market share is divvied up basis price discounting to get formulary coverage.
Remicade biosimilars not a template to judge US progress
Remicade biosimilars despite being at least 2-3 years in the market and supported by marketing firepower of Pfizer and Merck have had a volume and value share of just 6% each as per data till February 2019 ; such is the strong defence mounted by innovator which still accounts for over 90% of prescriptions. This lack of penetration has been one of the key reason for perceived lack of biosimilar progress in US. However, the contrast with Neupogen could not be more illuminating as oncology biosimilars now control ~80% of the syringe market even though Amgen still has over 40% of total Filgrastim prescription volume through vials, which does not have biosimilar presence. (except Granix).
Looking at biosimilar off take from a therapy perspective we believe that oncology as a therapy is more acute and pliable to faster biosimilar penetration with high growth of new patients which can be put on biosimilars; on the other hand, physicians in inflammation or immunology which have chronic and large stable populations with slower intake of fresh volumes may refrain from switching to biosimilars which do not, as yet, have built a database of responses from an immunogenicity and efficacy perspective outside of clinical trials. In this regard, biosimilars would behave more like branded drugs in small molecules and their absorption would depend on formulary coverage, pricing, payor contracting; in other words, those first off the block would enjoy the longest runway for growth. In this note, we look at the existing US biosimilar landscape and potential launches in the next 2-3 years. Within our coverage universe, Biocon is at the forefront of biosimilar development buttressed by partnership with Sandoz in addition to Mylan; albeit stock is fully valued at 30x FY21 PE despite doubling of EPS over FY19-21E.
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