European generic drug firms hope to lead the world in developing cheap copies of biotech medicines, but industry experts see hurdles ahead and warn that carving out a major market will not happen overnight.
This year has been a milestone for so-called biosimilars, with the European launch of the first product, a generic human growth hormone from Novartis AG's Sandoz, and approval of a second similar drug from unlisted Swiss group Biopartners.
That puts Europe ahead of the United States, where delayed rules for allowing copies means the market will not take off before 2010, according to IMS Health consultant Eva Edery.
Europe, as a result, has an opportunity to create a vibrant new industry, Greg Perry, director general of the European Generic Medicines Association (EGA), believes.
Europe is now well placed to become the global center for biosimilar R&D and production, he told a conference in London this week.
Other firms investing heavily in biosimilars, or biogenerics, include Teva Pharmaceutical Industries of Israel and Germany's Stada Arzneimittel, which plans to seek EU approval of a generic form of anemia drug EPO in June.
With prices expected to be 25 to 40 percent below those of original brands, the first wave of biosimilar drugs could bring savings of 1.5 billion to 2.0 billion euros ($1.9 billion to $2.6 billion) a year for European governments, Perry estimates.
The long-term prize may be far larger.
Global sales of biotech drugs -- which include insulin, EPO, growth hormone, and top-selling treatments for cancer and arthritis -- totaled $53 billion in 2005, of which Europe accounted for 29 percent, according to IMS.
Furthermore, the market is growing by 17 percent a year, or three times as fast as that for conventional drugs.
Eight major molecules with global sales of $15 billion could potentially go generic by 2010, including medicines from Johnson & Johnson, Roche, Amgen, Novo Nordisk, Eli Lilly, Serono and Biogen, Edery said.
TRICKY FOR INVESTORS
On paper, the opportunity in biosimilars is as big as the entire existing market for conventional generic drugs, and prices and margins on complex biotech products will be higher.
In practice, however, less than 10 percent of the potential market is likely to be available for generic firms in the near term, according to Nomura Code analyst Frances Cloud.
The bad news from an investor point of view is that most of the potential is in the very long term, she said.
Initial genericisation is likely to be limited to relatively simple protein drugs, like insulin and EPO, since making copies of complex molecules like antibodies remains a big challenge. Even relatively straightforward biosimilar products will cost around 50 million euros to develop, Cloud estimates.
EGA head Perry, meanwhile, is concerned the established branded industry may yet succeed in putting up new obstacles.
He fears biosimilars may not be allowed to carry the same official generic name as originals and could face reimbursement hurdles, as well as having extra requirements to enforce traceability of the products to patients.
All of which makes biosimilars a tricky play for investors, Cloud cautions.
The first generation of pure biosimilar stocks, such as Anglo-Singaporean firm GeneMedix, have not performed well, as the market has taken longer to develop than hoped.
For the future, Sandoz will clearly be a major force but the business is unlikely to move the dial much for Novartis overall.
Teva's portfolio, meanwhile, is embryonic, which leaves Stada as one of the few routes to gain exposure to the emerging sector, Cloud said.