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Generic Biologics Face Uphill Battle -- Part 2

Morningstar pharmaceuticals analyst Karen Andersen says generic biologics are an underdog in the U.S. market.

Brian Laegeler: I think from your perspective, you have seen some of the differences in your coverage list between traditional generics and biologics. What are your views on this subject?

Karen Andersen: Based on what we have seen so far in Europe, I think we have a little bit of an idea of how this could play out in the U.S. I think competition would really be a little bit less intense for generic biologics versus the generics that we see today on the market in the U.S., and that is for a few reasons.

One of those is the cost of manufacturing, the cost of clinical development, the potential--as you mentioned--marketing. I think that we are going to see fewer generic biologic competitors and that the price point for those drugs is going to be a lot closer to the branded drug pricing.

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Laegeler: OK. Tell us more about the manufacturing issue. I understand that these are harder to manufacture than the traditional products, correct?

Andersen: Right. Sort of an interesting example of that is, recently, Genzyme. They have been having a lot of difficulty with their manufacturing. They had some problems with the quality of their product. They had some trouble upgrading to a larger-scale manufacturing, and this is a company that has been manufacturing biologics for close to two decades now.

I think that when you look at bio-similars, the companies that are making these generic biologic drugs have much less experience, and so they could run into similar, if not worse, issues.

Laegeler: So, you see it as maybe a barrier to entry?

Andersen: Right, exactly.

Laegeler: I brought up the issue of evergreening. Given the exclusivity periods, where do you think these companies are in terms of their innovation, their pipeline? Do you think 12 years, or eight years certainly would be more than enough, I assume, to make the switch into just another long exclusivity period?

Andersen: Right. Generally speaking I think the biotech companies are very well positioned right now. Their pipelines are very strong from a couple of perspectives: one, as you mentioned, the evergreening. I think they are going to be able to make next-generation versions of their blockbuster drugs, and a lot of the companies already have those in late-stage clinical trials.

And then, you have also got just very novel drugs. Companies like Amgen, a company that needs to be concerned about bio-similars because they have got some of the older biologics that are considered easier to replicate. They have a very novel osteoporosis drug, Denosumab, that could hit the market as early as October.

Laegeler: Of your list what would you say is the best-positioned, or what do you like the most in terms of being positioned for this particular issue?

Andersen: I would say Roche is actually in a very good position, not only from the perspective of their patent expirations, which are pushed out further in the future than a lot of the other biotechs, but also a lot of their biologics are more complex. They tend to be monoclonal antibodies, which, I think, could be more difficult to come up with a generic biologic version of.

Laegeler: It sounds like we can agree that, if there is an underdog in this scenario, it is probably the generic drug side, and that biologics are gaining ground here on a day-to-day basis as far as the current legislation is going. Would you agree with that?

Andersen: Yeah, I think that this is just an issue that we are going to have to keep an eye on as health-care reform starts to go through.

Laegeler: Right.

Andersen: For Morningstar this is Karen Andersen, thanks for watching.

Karen Andersen does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.