The Shifting Landscape of US Generics and Biosimilars: Opportunities and Challenges
Alpha in the least likely of places
The US pharmaceuticals industry, particularly the generics and biosimilars sector, is experiencing significant transformations. In this post I will delve into the latest insights I have gathered, highlighting key trends, market dynamics, and future opportunities as I see them.
Firstly, let’s ground ourselves in the market we are looking at. We are zooming out to the global market and then we will zoom back in on the most important market in the sector; the Generics market in the US.
The global generic pharmaceuticals market is expected to grow steadily fuelled by demographic development, with its size expected to reach USD 740.5 billion by 2032, up from USD 374.6 billion in 2023. This expansion represents a compound annual growth rate (CAGR) of 8.1% from 2024 to 2032. The North American region is projected to hold the largest share, accounting for 35% of the market during this period. Another key factor driving this growth is the cost-efficiency of generic medicines, which provide more affordable alternatives to brand-name drugs. This not only helps individuals save on healthcare expenses but also eases the financial burden on healthcare systems. Additionally, the generic drug market promotes competition, leading to lower prices and improved accessibility to essential medications. However, pricing also has an impact on the structures of the sector. More on that later.
The growth of the generic pharmaceuticals market is influenced by several factors. Patent expirations play a crucial role, as they allow generic manufacturers to produce cheaper versions of brand-name drugs, increasing market competition and lowering drug prices. Regulatory scrutiny ensures that generic medicines meet stringent safety, effectiveness, and quality standards, comparable to their brand-name counterparts. The regulatory environment, with FDA at the forefront, is essential in maintaining market integrity. Furthermore, government healthcare policies and reimbursement mechanisms can significantly impact the adoption of generic drugs, often encouraging their use to reduce healthcare costs. Lastly, consumer preferences, including trust in brands, price sensitivity, and perceptions of treatment efficacy, can greatly influence market dynamics.
The Evolution of the US Generics Market
The US Generics market size is USD 120bn annually (35% of the global market), and is expected to at least keep that share of the global market driven by increasing ANDA approvals (Abbreviated New Drug Application. It is the process through which generic drug manufacturers gain approval from the U.S. Food and Drug Administration (FDA) to market a generic version of a previously approved brand-name drug.), the prevalence of chronic diseases, demographic development, frequent new product releases, and technological advancements.
The generics market in the US has been through a rollercoaster over the past 15 years. Historically, it has faced numerous challenges, including severe pricing pressures, excess capacity, and intense competition. Here's a brief overview of the market's journey:
2013-2015: This period saw significant price inflation in generics, driven by market consolidation among group purchasing organizations (GPOs).
2016-2018: The market entered a phase of substantial deflation due to increased competition and an oversupply of generic drugs, further exacerbated by a high number of FDA approvals.
2018-2023: Prices continued to decline, albeit at a slower rate, due to ongoing competitive pressures and the financial strain on manufacturers.
However, the last 1-1.5 years have seen a marked improvement in pricing dynamics. This positive shift suggests that the US generics market may be stabilizing, with potential for modest growth in the medium to long term.
Key Drivers of Pricing Stability
Several factors contribute to the improved pricing environment for US generics:
1. Limited Downside in Pricing: Manufacturers have reached a point where further price reductions are not feasible, leading to more stable prices.
2. Product Mix Optimization: Companies are shifting their focus from low-margin oral solid drugs to more lucrative categories.
3. Reduced Competition: Bankruptcies among key players have decreased excess capacity, creating a less competitive market.
4. Drug Shortages: Ongoing drug shortages allow manufacturers with consistent supply to command better prices.
5. Regulatory Scrutiny: Increased regulatory oversight of intermediaries like GPOs and wholesalers enhances the bargaining power of manufacturers.
Biosimilars: A Mixed Bag of Expectations and Realities
The biosimilars market in the US has seen fluctuating levels of excitement and disappointment. The market formation for biosimilars, particularly for Humira, has been challenging but offers valuable lessons:
Market Potential: Over the next decade, more than 50 biologic drugs with over $1 billion in sales each are expected to lose exclusivity, creating significant opportunities for biosimilars.
Regulatory and Policy Support: Changes like the Part D benefit redesign and potential universal interchangeability could boost biosimilar adoption.
Challenges: Despite the large addressable market, commercial performance has been mixed. Issues like pricing collapse, market overcrowding, and innovator companies' strategic shifts have limited the success of biosimilars.
Zooming in on the world’s biggest drug; Humira. Humira, manufactured and sold by AbbVie, finally went off patents in 2023 after years of legal battles.
Humira is used for the management of a variety of inflammatory autoimmune diseases. It is a tumor necrosis factor (TNF) blocker, a type of medication used to reduce inflammation and alter the immune response in various autoimmune diseases. TNF blockers specifically target and inhibit the activity of tumor necrosis factor-alpha (TNF-α), a cytokine involved in systemic inflammation. By blocking TNF-α, these medications help manage and alleviate symptoms of inflammatory conditions, the biggest therapeutic area within these conditions is Rheumatoid arthritis, but Humira is indicated for several conditions:
Source: https://dailymed.nlm.nih.gov
AbbVie has extensively leveraged the US patent system to delay market entry of competitors, a strategy often referred to as "evergreening." It filed 311 patents for Humira, with 165 being granted. In 2016, AbbVie sued Amgen, the manufacturer of Amjevita (launched in 2016), for infringing 10 of these patents. Amgen agreed to postpone its sales until 2023, allowing AbbVie to significantly increase Humira's price. From 2016 to 2023, the price of Humira rose by 60%, generating $114 billion in revenue for AbbVie during this period. In 2023, Humira was one of the highest-grossing pharmaceutical products in the world, with sales in the US of nearly USD 12.2 billion. However, Humira is now off patents and there are numerous biosimilars of Humira.
The Humira biosimilars market illustrates both the challenges and opportunities in this space:
Initial Struggles: Despite the launch of multiple biosimilars in 2023, Humira retained a 99% market share initially, indicating slow market uptake.
Recent Successes: Sandoz's Hyrimoz biosimilar has gained significant traction after CVS removed branded Humira from its preferred formulary list, highlighting the potential for strategic wins.
Opportunities for Key Players: Teva and Sandoz
Teva and Sandoz stand out as beneficiaries of the current favorable trends in the generics and biosimilars markets:
Teva: The company's pivot towards value-added branded products, combined with stabilizing generics pricing, positions it well for future growth. See posts on Teva´s first quarter performance and future outlook:
Sandoz: Sandoz's success with its Humira biosimilar has led to an upgrade in its stock rating, underscoring the importance of strategic positioning and market timing.
Biosimilar Humira (adalimumab) Players List
The competitive landscape for Humira biosimilars is diverse, with multiple players aiming to capture market share. Here’s a detailed look at the key players:
Teva and Alvotech launched Simlandi in the US on 21. May 2024.
According to FDA´s Purple Book Database of Licensed Biological Products, Simlandi is approved in the form of autoinjector in 40mg/0.4ml, which represents the dominant strength of Humira, making up ~86% of the high-dose market.
The variety of players and their strategic partnerships highlight the competitive and fragmented nature of the biosimilars market.
The Potential of key Biologic Drugs Coming Off Patent
The upcoming patent expirations of a large number of biologic drugs present a lucrative opportunity for biosimilar manufacturers. This wave of expirations is expected to drive significant growth in the biosimilars market, offering a large total addressable market (TAM). Key drugs anticipated to lose exclusivity include leading brands in oncology, immunology, and other therapeutic areas. Let have a look at perhaps the 10 most interesting ones:
Key Biologics Losing Patent Protection: Sales and Expiration Timeline
1. KEYTRUDA (Pembrolizumab)
Company: Merck & Co.
Patent Expiration: 2028
Details: First approved in 2014, Keytruda treats various cancers. In 2023, it accounted for 40% of Merck’s pharmaceutical sales. The expected revenue in 2028 is $33.7 billion, declining to $27.4 billion by 2029.
2. ELIQUIS (Apixaban)
Company: Bristol Myers Squibb & Pfizer
Patent Expirations: 2027 to 2029
Details: Used to prevent blood clots, Eliquis was approved in 2011 in the EU and 2012 in the US. Generics are anticipated by 2027, impacting current sales, which are among the highest for both companies.
3. EYLEA (Aflibercept)
Company: Regeneron, Bayer
Patent Expirations: 2025 to 2026
Details: Approved in 2011 for macular degeneration and other conditions, Eylea generated $5.9 billion in US sales in 2023. Competitors are preparing biosimilars as patents near expiration.
4. OPDIVO (Nivolumab)
Company: Bristol Myers Squibb
Patent Expiration: 2028
Details: An immunotherapy drug generating $9 billion in 2023, with sales projected to reach $11.75 billion by 2026. Biosimilar development is underway by several companies.
5. IBRANCE (Palbociclib)
Company: Pfizer
Patent Expiration: 2027
Details: A breast cancer treatment with declining sales due to competition. Pfizer has extended exclusivity until 2027, working to bolster its oncology portfolio to offset potential revenue losses.
6. XARELTO (Rivaroxaban)
Company: Bayer / J&J
Patent Expiration: 2026
Details: An anticoagulant prescribed over 80 million times in the US, generating €4.5 billion in 2022. Patent disputes have been settled, but exclusivity ends in 2026.
7. TRULICITY (Dulaglutide)
Company: Eli Lilly
Patent Expiration: 2027
Details: Approved in 2014 for type 2 diabetes, Trulicity is a major revenue source for Eli Lilly. The company is focusing on its diabetes portfolio to mitigate future revenue impacts.
8. PREVNAR 13
Company: Pfizer
Patent Expiration: 2026
Details: A vaccine against Streptococcus pneumoniae, Prevnar 13's patent expiration will be another challenge for Pfizer, which has invested heavily in R&D to counteract patent losses.
9. OCREVUS (Ocrelizumab)
Company: Roche
Patent Expiration: 2028
Details: Treating multiple sclerosis, Ocrevus brought in CHF 6.4 billion in 2023. Roche is focused on developing new treatments and partnerships to sustain growth post-patent expiration.
10. PROLIA/XGEVA (Denosumab)
Company: Amgen
Patent Expiration: 2025 to 2026
Details: Approved in 2010 for bone cancer treatment, Prolia/Xgeva has already lost patent protection in some European countries and is set to expire in major markets by 2026. Amgen is strengthening its pipeline to offset anticipated revenue losses.
Generics Companies Filing for Bankruptcy: Elimination of Excess Capacity
Over the past five years, several generics companies have filed for bankruptcy, significantly impacting the market landscape:
These bankruptcies have reduced excess capacity in the market, leading to a more balanced competitive environment and improved pricing stability for the remaining players. This is a key reason for an improved pricing outlook for generics. Keep in mind, this has a cyclical element, so number of players and pricing needs to be monitored on an ongoing basis. Pricing drove out the less robust companies that were forced to give higher price concessions that in turn diluted margins and company profitability. Additionally, the companies with the most robust supply chains are the ones that can cope when prices are under pressure, and are also the ones that thrive more when the pressure subsides. In the Generics space, Teva and Sandoz are the two companies that stands the strongest when it comes to supply chain capabilities.
Market Overview: Top Companies by Revenue
The following tables provide an overview of the top companies in the US generics market by revenue over the past four years:
By Revenue - US Generic Market 2020 - 2023
From 2020 to 2023, Teva consistently held the top spot in the generic pharmaceutical market, maintaining the highest market share and revenue, although its revenue decreased slightly from $4.9 billion to $4.2 billion. Viatris, Prasco Labs, and Amneal were also key players, with Viatris slipping from second to third position by 2023. Sandoz, Hikma, and Zydus showed stable performance, consistently ranking within the top ten.
Conclusion
The US pharmaceuticals industry, particularly the generics and biosimilars sector, is undergoing significant transformations driven by various market dynamics and trends. The global generic pharmaceuticals market is set to nearly double by 2032, driven by demographic development, cost-efficiency, and competitive pressures that promote lower prices and improved accessibility. In North America, which is expected to hold the largest market share, these factors are compounded by increasing ANDA approvals, the prevalence of chronic diseases, and technological advancements.
The US generics market has seen periods of price inflation and deflation over the past 15 years, influenced by market consolidation, competition, and regulatory changes. However, recent improvements in pricing stability suggest a more balanced and potentially growth-oriented future. Key drivers include limited pricing downside, product mix optimization, reduced competition due to bankruptcies, and regulatory scrutiny that enhances manufacturers' bargaining power.
The biosimilars market, though challenging, presents significant opportunities as over 50 biologic drugs are expected to lose exclusivity in the next decade. Humira's case exemplifies both the hurdles and potentials in this space, with biosimilars slowly gaining traction. Key players like Teva and Sandoz are well-positioned to benefit from these trends, supported by robust supply chains and strategic market positioning.