Europe's biosimilars market set for a major transformation

The European biosimilars market is set to transform in the next few years, according to research by Alvarez & Marsal. The firm outlines four key trends sweeping through the industry.

Three concepts to note for this pharmaceutical market analysis: biologics, generics and biosimilars. It all starts with a patent, where a single player locks in a certain drug formula – a biologic. When the patent expires, other players can produce drugs with the same formula – generics.

While the patent is still active, some players produce biosimilars – drugs with the same purpose as biologics but with some variations due to a different development process. Biosimilars bring lower prices – discounts of up to 30% – as well as differentiation and competition to the pharma market.

Backed with high disruptive potential, this segment is only growing in profile. A round of four trends that will define the near future of biosimilars:

Growth

The European Union spends roughly €200 billion on pharmaceuticals per year. In 2018, biosimilars took up €55 billion of this budget. Today, they draw well over €90 billion. And the future is even brighter, with significant shake-ups expected in the pharma market.

In the next four years, ten major biologics – Humira, Avastin and Stelara included – will see their patents expire. Combined, these biologics clocked sales of $45 billion as of 2019, and their patent expirations will open up a vastly competitive space in the pharma landscape.

“These dynamics will help biosimilars embed further into the global healthcare system,” noted Raymond Berglund, London-based managing director at Alvarez & Marsal in its healthcare & life sciences practice. By 2025, the biosimilars market is expected to cross $24 billion, clocking a compound annual growth rate (CAGR) of nearly 30% in the process.

Consolidation

With this sizeable market opportunity to consider, a currently fragmented biosimilars segment will likely consolidate in the next few years to combine resources. “We believe that consolidation will have a positive effect on the market as a whole,” said Berglund.

“Competitive innovation in a consolidating market should help to drive prices lower, which we expect in turn to generate increased demand. Companies will also benefit from lower costs as a result of post-consolidation synergies.” The segment is one to watch for hot merger & acquisition (M&A) activity in the near future.

New entrants

And it is not just consolidation that will drive pharma M&A: new investors are ready and waiting to get in on the action. With their controlling share in the market, pharma sector incumbents remain in the driver’s seat – as they decide whether to position biosimilars as a core growth driver in the future, or a supplementary business.

“These decisions will lead to significant transaction activity. Biosimilar divisions of big pharmaceuticals companies may be targets for carve-outs or acquisitions. Strategic assets within biotech companies and generics specialists may also prove worthwhile targets.We expect that this will create many opportunities for private equity interest in the space,” noted Schellion Horn, managing director at Alvarez & Marsal’s economics practice in London.

“A buy-and-build strategy that ‘rolls up’ smaller and mid-size pharmaceutical assets could create significant value if management and investors are able to capitalise on economies of scale while reducing overheads in sourcing and supply chain.”

Uncertainty

All things considered, biosimilars are not a new concept: they’ve been around for 15 years, as have these significant market opportunities. Yet, growth has been slower than expected – owing to several market barriers.

Producing a biosimilar involves developing complex copies of original biologic molecules – a process that costs up to $200 million per the researchers, not accounting for manufacturing, distribution, marketing, competitive pricing, training practitioners on how they are administered and several other expenses.

All this without a guarantee of success. For biosimilars to sell, they need buy-in from regulators, quality-control bodies, insurers, clinicians, pharmacists and – crucially – patients, who need to trust the replica. Even with this buy-in, patent-holders with a stronghold on the market can set up all kinds of barriers to entry for biosimilars – including aggressive pricing, innovation, additional patents on processes and other exclusionary behaviour.

Most of these factors currently persist, which means the vibrant market will continue to be underpinned by doubt and uncertainty. Some might choose to take the risk of buy-in, while others might wait and watch.

All things taken together, Europe's biosimilars market is due for radical transformation in the next half a decade or so.