Biocon's Woes: Why Cracking Biosimilars Will Be A Challenge For Indian Drugmakers

Biosimilars are near-identical copies of an original, approved biological medicine and are often manufactured when the original product's patent expires. According to Vishal Manchanda, pharma analyst at Nirmal Bang, this is a segment that drugmakers can’t avoid as 50% of global sales for new therapeutic areas comes from biologics and biosimilars.

But despite being the first mover, Biocon's market share in the U.S. remains in a single digit against the anticipated 20-25%, Aditya Khemka, principal fund manager of healthcare equity portfolio at InCred Capital, told BloombergQuint. The company even deferred this financial year's revenue target for its biosimilars arm.

So far, Biocon is the only Indian drugmaker with a substantial contribution to the topline from biosimilars at 40%. However, other drugmakers including Dr. Reddy's Laboratories Ltd., Aurobindo Pharma Ltd. and Lupin Ltd. have also started investing in the segment. But with little contribution to the top line so far.

For the new entrants, gaining market share will depend on multiple factors including quick approvals from the U.S. regulator, first-mover advantage and quality, according to analysts.

Delays in getting a nod from the U.S. Food and Drug Administration may lead to crowding for biosimilars, Kotak Research said in a recent report citing the example of Avastin (a cancer drug) for Biocon.

In U.S. and Europe, industry data indicates a double-digit price erosion on biosimilars as new companies enter existing molecules, Khemka told BloombergQuint.

Khemka said while biosimilars may be complex, they’re similar to generics. “As long as there’s a fight from biologic innovators (the first entrants in the market that developed the molecule), companies will face challenges.”

Developing a biosimilar can cost anywhere between $50 million and $150 million (around Rs 350-1,150 crore), Manchanda from Nirmal Bang said. “Biosimilars do provide a growth avenue for companies but it’s fraught with risks related to evolving regulatory framework, evolving manufacturing technology and commercialisation (lifecycle management by innovator).”

Indian companies, Manchanda said, don’t enjoy any cost advantage over other countries for biosimilars—unlike in the small molecules. “There’s no established supply chain for biosimilars in India yet.”

Indian companies also lack track record, Manchanda said. “The U.S. is regretting its overdependence on India and China for chemistry-based drug supplies and they’re now overtly conscious and don’t desire a similar situation in biosimilars,” he said. “This coupled with no major cost advantage seems to work adversely for Indian companies.”

Dr. Reddy's have taken a "cautious and calibrated" approach for biosimilars, Khemka said.

In its earnings call after the first quarter, Dr. Reddy's said it will focus on emerging markets, and Russia in particular, for biosimilars.

While Vinita Gupta, chief executive of Lupin, said in the second-quarter earnings call that less than 10% of the company's R&D spend goes to biosimilars, Managing Director Nilesh Gupta sees the segment as a "good growth opportunity".

In response to BloombergQuint's queries, the company did not provide a biosimilar revenue or margin estimate or guidance. Cyrus Kakaria, president of biotechnology at Lupin, said the segment could earn higher margins than the base business although it would be too soon to comment.

According to Manchanda of Nirmal Bang, Lupin's approach is more spread out as it's targeting more therapeutic areas with biosimilars. Aurobindo Pharma Ltd., however, has in-licensed molecules to cut short the development cycle, he said.

IPCA Laboratories Ltd. is passively investing, while Shilpa Medicare Ltd., Laurus Labs Ltd. and Glenmark Pharmaceuticals Ltd. are building biosimilar businesses through partnerships or acquisitions.

BloombergQuint's emailed queries to Biocon, Dr. Reddy's, Aurobindo Pharma and IPCA Labs remained unanswered. Shilpa Medicare, Laurus Labs and Glenmark Pharma, too, didn't respond to queries.

Indian drugmakers are compelled to enter segments like biosimilars in developed markets as their generic business isn’t doing too well there, Khemka said.

In an branded market like India, volume and price growth happens incrementally over the years, Khemka of InCred Capital said. “In unbranded developed markets (like the U.S where doctors prescribe molecules), there’s opportunity for quick returns on investments,” he said. That, however, is offset by pricing pressures due to competition, Khemka said.

For Biocon, which has invested heavily in biosimilars, that's already playing out in the U.S.