Study: Financial Viability of Biosimilars Depends on Originator Sales, Market Entry Order

A financial evaluation study proposed a framework for choosing biosimilar development candidates by determining the circumstances under which the biosimilar may be financially viable. The authors said that selecting a candidate biosimilar “requires detailed and careful analysis to ensure value creation.”

In the piece published in Expert Review of Pharmacoeconomics & Outcomes Research, the investigators used the net present value (NPV) model to assess financial viability. NPV, they said, is “a commonly-used tool to assess the financial valuation or viability of investments across industries,” and “​​provides the present value of all future cash flows from an investment.”

NPVs were calculated for 3 biosimilar development candidates in different categories of originator sales under a base-case and various other scenarios with different development costs, sales, expenses, and discount rates. The authors also noted several other factors that could influence the choice of a biosimilar candidate, such as technical complexity, the company’s presence in the therapeutic area, and anticipated competition.

Low Originator Sales Associated With “Some Financial Risk” for a Biosimilar Candidate

The investigators identified 3 anti-interleukin (IL) monoclonal antibody biosimilar development candidates, 1 from each of the 3 categories of global sales of the reference product at loss of exclusivity: $1 billion to $4 billion was considered low-sales, $4 billion to $7 billion was deemed medium-sales, and $7 billion to $10 billion was considered high-sales. The IL-5 antibody mepolizumab was chosen for the low-sales candidate, secukinumab, an antibody targeting IL-17A for the medium-sales candidate, and the IL-4A antibody dupilumab for the high-sales candidate.

According to their base-case analysis, the authors said that, overall, pursuing a biosimilar candidate to an originator in the low-sales category carries “some financial risk,” whereas biosimilar candidates with originators in the medium- and high-sales categories were associated with lower risk.

The order of market entry was also “a very important factor,” affecting the financial valuation. The NPV of a low-sales biosimilar was favorable with market entry order up to 3 (originator plus 2 previous biosimilars). However, at a market entry order of 3, their calculations predicted that a low-sales biosimilar would not cover the cost of development within 11 years of marketing. At entry order of 2, they estimated the cost of development would be covered after 8 years.

In contrast, for medium and high sales originators, the NPV for biosimilar candidates was favorable with a market entry order up to 6. A medium-sales biosimilar candidate with market entry order of 4 was predicted to cover its development costs after 6 years of marketing. For a high-sales the cost of development was estimated to be covered within 3 years for a market entry order of 3.

Influence of Development Costs and Other Expenses, Discount Rates on Financial Valuation

To cover various scenarios based on product development, competition, and marketing strategies, the investigators performed sensitivity analyses to determine the risk-adjusted NPV (rNPV) of each biosimilar with changes in development costs, cost of goods (COGs), SG&A (selling, general and administration) expenses, sales, and discount rates.

The rNPV for a low-sales biosimilar was favorable under 8 of their 14 pre-defined scenarios, a medium-sales biosimilar was favorable under 12 of 14, and a high-sales biosimilar under all 14. The authors determined that the rNPV of a low-sales biosimilar “has higher sensitivity towards sales, discount rate, and development cost whereas, rNPV of medium- and high-sales biosimilars has higher sensitivity towards discount rate followed by sales.”

Framework for Biosimilar Candidate Selection

Based on their findings and industry best practices, the authors recommend the following framework for biosimilar candidate selection:

1. Identification: identify the therapeutic category and product type
2. Screening: consider the therapeutic area, sales of the originator, efficacy and safety of the originator, potential competition, fit to the company’s capabilities, and intellectual property
3. Financial evaluation: use standard and risk-adjusted NPV across multiple scenarios as performed in the current analysis, identify scenarios with favorable and unfavorable NPV
4. Selection: select a candidate “with robust NPV across scenarios based on sensitivity analysis, adequate return on investment, and portfolio mix”
5. Mapping product development pathway and strategy: plan allocation of resources, engagement with regulatory agencies, development strategy, and timelines
6. Continuous validation: continuously validate assumptions and financial valuation estimates based on the evolving market

Finally, the authors provided a list of mitigation strategies to address negative influences on the financial valuation of biosimilar candidates, including high development cost, low sales, high COGs, high SG&A expense, and high discount rate.

Reference

Patel R, Nuwal T. Financial evaluation of value-creating biosimilar development candidates: a business case study of low-, medium- and high-sales biosimilars. Expert Rev Pharmacoecon Outcomes Res. 2022;1-19. doi:10.1080/14737167.2022.2072830