This content is from: Portfolio

FDA Inaction Could Be Preventing Investment in Cheaper Drugs

Companies that make biosimilars — off-patent versions of biological drugs that are significantly cheaper than the originals — have a problem: They need investment, but they can’t get that investment without FDA approval. And the FDA is dragging its heels.

The Food and Drug Administration can’t make up its mind about how to regulate biosimilars — new off-patent drugs that are to biologicals what generics are to chemistry-based drugs. And this uncertainty is hurting the capital-raising of many companies in the biosimilar space, big and small.

Small companies such as Prolor Biotech and Viropro are discovering that part of their capital-raising campaign has to include efforts to educate potential investors and stakeholders about what biosimilars are, how they will affect the whole process of health care and how a more transparent regulatory environment would be helpful. “It’s all about clear rules and certainty,” says Sharon di Stefano, a health care analyst with Fordham Financial Management in New York. “Once you know what the rules are, investors will follow.”

Biosimilars drastically lower the price for some treatments of cancer, diabetes and multiple sclerosis and making them available to more patients. But the longer the FDA vacillates, the longer it will take the drugs to reach patients.

“New therapeutics development is a multiyear process that requires human clinical trials prior to FDA approval,” says Raghuram Selvaraju, a biotechnology analyst with Morgan Joseph TriArtisan, a New York merchant bank that focuses on technology and life sciences businesses. “Also, review times at the FDA may prove longer than originally expected.” The agency has thus far not issued guidelines that would map out a formal approval pathway for the new generation of biologic drugs. This makes it difficult to predict precisely what clinical goals a company should aim for, Selvaraju explains.

Making biological drugs — some as well known as Epogen, a drug used in dialysis; others as specialized as Ceredase, a cancer drug — is complicated. They are based on time-consuming, complex biotechnology processes, and they use living organisms such as E. coli and yeast in their manufacture. Their development cycle is long, their approval by the FDA complicated. But with many biological drugs losing their patent protection in the next few years — drugs that currently generate sales of $60 billion or more annually — companies want to be in the biosimilar manufacturing business. Those that were venturesome enough to be out there early want to get in on the action but have to wait until there is some clarity from the FDA.

“What we are offering is a proven manufacturing platform that can help drugmakers improve their manufacturing yields,” says Rajiv Datar, CEO of Viropro, an Irvine, California, company that offers contractual research and manufacturing services to biopharmaceuticals companies. Almost a vanguard company, Viropro can help many pharmaceuticals companies test the biosimilars market with far less risk and cost than they could on their own. It has signed up some major pharmaceuticals manufacturers, such as Spectrum Pharmaceuticals, to develop a biosimilar to Genentech’s Rituximab, which is used to treat non-Hodgkin lymphoma. In 2009, Rituximab had sales of $5.6 billion worldwide.

If the uncertainty clears, Viropro could be a big winner as it lines up manufacturing orders from a slew of drugmakers that want to test the biosimilars market.

Another beneficiary could be Prolor Biotech. Based in Israel, Prolor, which has raised more than $50 million in public and private capital, plans to manufacture a whole line of biosimilars. Its lead product is a longer-lived version of human growth hormone that will allow for greater compliance and more-effective use. “We are not simply copying existing approved products,” says Shai Novik, president of Prolor Biotech. “We are trying to create novel versions of existing drugs that represent substantial and clinically meaningful improvements over the currently marketed agents.”

Morgan Joseph’s Selvaraju is high on biosimilars and Prolor in particular. He expects the company’s stock, currently priced at $6 a share on NYSE Amex, eventually to reach $16. He points to some of the benchmarks Prolor has already achieved. Earlier this month the company announced that a phase-two clinical trial had achieved the key goals it had established. The data shows that a single injection of the hormone has the potential to replace seven injections of the currently marketed human growth hormone. Under normal conditions this would elicit a highly enthusiastic response from investors, but until the FDA clears the waters, investors are likely to watch and wait, Selvaraju notes. The makers of biosimilars would like to know from the FDA what the regulatory ground rules are and what they have to prove to get approval. If, for example, the FDA treats biosimilars as brand-new drugs, then the FDA should establish the pathway for approval, the makers say.

A parade of pricey new drugs has raised concerns about the costs of care among patients, providers and insurers. For example, Provenge, a drug used to prevent recurrence in patients recovering from prostate cancer, costs $93,000 for a course of treatment, while Zytiga, also used to treat patients with advanced prostate cancer, costs about $5,000 a month. Another of the new drugs, Sanofi’s Jevtana, costs about $8,000 every three weeks. Industry experts point out that many companies price these drugs based on a position of monopoly. Many experts are optimistic that competition from smaller entrepreneurial companies — companies that can reduce manufacturing costs such as Viropro, or that can introduce cheaper, more effective drugs, such as Prolor — will create a better climate for drug use and pricing.

In 2009, Congress passed the Biologics Price Competition and Innovation Act, which authorized the Food and Drug Administration to seek an “abbreviated pathway” for approval of drugs that are biosimilar to already-approved products. The agency has been working on the guidelines and published some of the reports of the process in the New England Journal of Medicine on August 4. An FDA spokesman told Institutional Investor that the agency is in the process of issuing guidance on biosimilars and will make it available in 2011.

Related Content