The biotechnology industry and its investors need not worry yet about Big Pharma's push to make copycat versions of the top-selling biotech drugs.
A whole host of things have to go right before drugmakers like
can compete in the biotech arena. For starters, Congress has to pass legislation creating a regulatory pathway that will allow drugmakers to sell so-called bio-generics or bio-similars.
But I don't see Congress as the biggest challenge. The real hurdle for drugmakers will be perfecting the manufacturing process for these biologic copycats. Talk to manufacturing experts from companies like
and they'll tell you that making biologic drugs is a tough thing to do. And expensive.
It took these companies years to figure out how to cultivate and genetically engineer living cells so that they produce the proteins and antibodies that can later be filtered and refined into successful drugs like Avastin or Myozyme or Aranesp. By comparison, most drugs sold by Big Pharma are manufactured relatively easily from synthetic chemicals.
It's a simplistic analogy, but I think of the manufacturing process for biologic or biotech drugs like making beer or wine. Small changes to the recipe, or even to outside conditions like time or temperature, can result in different-tasting end products. The same goes for biotech drugs, and sometimes these variations can have negative effects.
The Food and Drug Administration is going to be very sensitive to these changes, to make sure that patients aren't prescribed a drug that is ineffective or unsafe. In fact, U.S. regulators already take a very tough line.
Look at Genzyme, which has run into big delays trying to convince the FDA that Myozyme, its drug for Pompe disease, made at a new, larger manufacturing facility is the same as the old Myozyme made at a smaller-scale facility.
Genzyme isn't trying to make a new version of Myozyme, the company just wants to make more of it. Yet, the FDA required Genzyme to run a clinical trial testing the Myozyme made at the larger manufacturing plant. Even then, regulators seriously questioned the outcome and data that came from that trial.
My point here is not to say that drug companies like Merck will be unable to make their own biologic drugs. It's simply to say that the process is complicated and there are no guarantees of success.
Merck said Tuesday that it would rely on technology that uses yeast cells to produce the proteins in its biotech drugs. The company predicts its first product will be an anti-anemia drug similar to Amgen's Aranesp, which is made in mammalian cells.
Since Merck hasn't tested its anti-anemia drug in humans yet, we have no way of knowing whether these yeast cells can produce an anti-anemia drug that is as safe or effective as Aranesp made in mammalian cells.
Maybe yeast cells are a better way of making biologic drugs? Or maybe Merck just needed to find a way to steer clear of mammalian cells so that it didn't risk violating existing patents held by companies like Amgen?
Does anyone want to make a wager that at some point, the FDA rejects or significantly delays a Big Pharma biotech drug because a red flag pops up in the clinical data? It's going to happen. Trust me.
When most people think of generics, they think of a lower-priced drug that is chemically identical to its brand-name counterpart. But biotech copycats, by definition, will not be identical. That's why the term bio-similar is more accurate than bio-generic.
If Merck is successful in getting its anti-anemia drug on the market, it won't be a generic version of Aranesp in the way that pharmacies sell a generic simvastatin as a cholesterol-lowering substitute for Merck's Zocor.
Will doctors choose to prescribe a relatively new and unproven anti-anemia drug from Merck, or continue to prefer Aranesp due to its long track record?
Price will of course play a role in the success or failure of copycat biotech drugs. Merck says its anemia drug will be less expensive than Amgen's Aranesp, but by how much?
It costs more money to produce a biotech drug than a conventional drug, plus companies like Merck have to recoup the capital expenditures required to build new biologic manufacturing plants. Merck is also going to need to market its biotech copycats, which means hiring and paying for a sales force.
All these costs likely mean that a Big Pharma push into the biotech drug market will create competition for existing biotech companies but not necessarily as much pricing pressure. We won't see a scenario where a flood of generic drugs drops the price 80% or more and where the brand-name drug disappears.
Perhaps we'll see prices lowered by 10-15% with older "brand name" biotech drugs still maintaining significant market share.
During its presentation Tuesday, Merck said that sales of biologic drugs totaled $94 billion last year and will grow to $187 billion in 2014. With declining revenue due to generic competition of their own, it's no wonder Big Pharma companies like Merck want a piece of the biotech action.
Bio-similar drugs are coming to a doctor's office near you. The push for health-care reform will create a legal pathway for these biotech copycats in the next year. After that, the onus will be on conventional drugmakers to prove they have the technical expertise to manufacture these new biotech drugs well enough to pass muster with regulators.
At this point, there are scarier things for the biotech industry and its investors to worry about.
At the time of publication, Feuerstein's Biotech Select model portfolio was long Genentech.
Adam Feuerstein writes regularly for TheStreet.com. In keeping with TSC's editorial policy, he doesn't own or short individual stocks, although he owns stock in TheStreet.com. He also doesn't invest in hedge funds or other private investment partnerships. Feuerstein appreciates your feedback;
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