An inflection point for biosimilars

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Biosimilars continue to post monumental growth. Estimates suggest that global sales topped $15 billion in 2020, representing a compound annual growth rate of 56 percent since 2015 (Exhibit 1). The future looks equally bright, with a number of factors supporting continuing high growth.

According to McKinsey’s biosimilars market model, the market is set to continue its double-digit growth, doubling in size to more than $30 billion by 2025, and over $60 billion by the end of the decade.
Biosimilars have recorded impressive growth in recent years.

First, 17 blockbuster1 molecules with annual peak sales amounting to $60 billion will lose exclusivity between 2020 and 2025, which is anticipated to allow for biosimilars market entry. In the meantime, biosimilars uptake is increasing in speed and depth both across channels and in specialties where biosimilars have been introduced more recently.

Moreover, as regulatory environments evolve, particularly in the United States, China, and Japan, the opportunities for biosimilars increase. This dynamic is already evident in Europe, which has approved more than 60 products (counted by brand name) and accounts for half of the global biosimilars market by value. Finally, the level of discounting—typically around 20 percent of the price of the originator product for a single new biosimilar entering the market, or 30–50 percent for multiple biosimilars entering the market simultaneously—should stimulate demand and foster competition.

This article outlines some of the key differences in adoption across the globe before turning to three critical strategic considerations for biosimilars companies: how to tailor their commercial models, how to rethink their portfolio management, and how to accelerate development. With a purposeful approach on these three fronts, coupled with a focus on reducing costs, companies can position themselves to be first to market and help propel their business into the next S-curve of growth.

Biosimilars uptake varies by market and molecule

A pooled literature review of 90 studies published in 2018 indicated that switching from originator drugs to biosimilars made no difference in clinical efficacy and safety in the majority of cases.2 Many countries now encourage physician-led switching to biosimilars, and switching among pharmacies, pharmacy benefit managers, and others is also likely to increase.

In maturing European markets, biosimilars adoption exceeds 46 percent by volume across all molecules. However, this aggregate number masks wide variations in uptake between individual markets and molecules resulting from differences in policy, utilization of tenders, pricing and reimbursement, prescriber education.

Such differences are apparent in Exhibit 2, where variable approaches, for example between tender-based procurement and physician-driven pharmacy models, might result in different penetration levels. As markets develop, pricing dynamics play out more quickly, with companies offering large discounts or rebates for specific channels or key accounts earlier in a product’s commercial life cycle. For example, initial price discounts for recently launched biosimilars such as adalimumab are much greater than they were for older products.

Even within Europe, biosimilars market penetration and price discounting vary widely by country.

In the United States, the Food and Drug Administration (FDA) approved seven biosimilars in 2018, almost as many as in the previous three years, with an additional ten approved in 2019. The FDA has also published guidance on biosimilars interchangeability that provides biosimilars companies with more clarity in product development. This greater clarity on legal and regulatory matters has helped recently launched biosimilars achieve much more rapid uptake, as with the oncology biosimilars that managed to reach almost half of the market within 12 months—even faster than European averages.3

More favorable financing has also played a part. For instance, Medicare Advantage plans have been updated to allow step therapy to be used to identify the most cost-effective drug for outpatients, and to include biosimilars alongside brand-name drugs in the coverage-gap discount program for prescription drugs. So far, the United States biosimilars market operates mostly through the buy-and-bill channel administered by physicians’ offices. By 2023, it is expected there will be six to eight biosimilars for adalimumab launched in the United States, operating through the retail pharmacy channel and claiming by 2025 shares of a market worth $18 billion.4

The biosimilars market in China dates back to the 1990s, when local “bio copies” were approved without head-to-head comparisons to the originator drugs. In 2019, the first four biosimilars were approved under a strict new framework created in 2015. The inclusion in the National Reimbursement Drug List of the advanced biologic treatments trastuzumab and rituximab in 2017, followed by the inclusion of adalimumab, infliximab, tocilizumab, golimumab, pertuzumab, aflibercept, and omalizumab in 2019, has increased the uptake of biologics and will allow the market to expand further. Estimates suggest that about 400 separate biosimilars products are in active development in China.5

Although biosimilars got off to a delayed start in Japan, the launch of biosimilars for large patient populations should accelerate the growth of the market. Uptake has also been supported by recent policy changes; the new guidelines published by the Japanese Ministry of Health, Labor, and Welfare in April 2020 provide incentives for medical institutes to prescribe self-injecting biosimilars, for example. For biosimilars in general, the scale of adoption is likely to vary by molecule and depend heavily on incentives for prescription and use.

No matter which markets a biosimilars company competes in, however, we believe the key to building and maintaining a viable business will lie in rethinking its commercial approach, portfolio management, and speed to market.

Commercial model: Lead by embracing continuous innovation

When McKinsey surveyed the emerging biosimilars sector in 2018, it was already evident that agile go-to-market approaches were a prerequisite for success. As more biosimilars enter the market, it becomes ever more important for companies to keep adapting their market positioning and strategy to the changing competitive context. We believe that effective commercial approaches strike a balance between three different imperatives: making the product more affordable for patients and building tender capabilities to secure volume gains; generating further savings for payers and providers through incentives; and tailoring pricing and channel strategies to individual products and countries to achieve traction at physician level.

In developed markets, the ability to balance commercial models across different channels will be critical. That involves developing a detailed understanding of decision making among physicians and patients and economic flows at payers and providers, and then using this understanding to segment these groups by channel. This is an iterative process, not a one-off challenge. As physicians and payers become more comfortable with biosimilars and the nature of stakeholder engagement evolves—partly in response to the disruptions caused by the COVID-19 pandemic—companies will need to keep adapting and refining their approach accordingly.

Pharma companies will need to undertake deep channel analytics and develop and test a range of models and contracting partners. In oncology, for example, different countries will require different commercial approaches tailored to their needs. In Germany, support to hospitals and statutory-health-insurance physicians regarding biosimilars could be established with multistakeholder platforms, including payers and providers. In the United Kingdom, manufacturers could work with chemo-compounding companies and “chemo at home” providers to manage distribution.

In immunology, meanwhile, the confidence in prescribing biosimilars could be strengthened with real-world evidence programs in both hospitals and primary-care settings, and outcome-based models could be created, for example in France. In Spain, on the other hand, where biologics are purchased and dispensed only in hospitals, the appropriate models could be built by region and size of hospital. More broadly, in countries such as Brazil and China where biosimilars have yet to become well established among healthcare professionals, companies need to develop strong local partnerships where feasible and provide education to build awareness.

One of the reasons for biosimilars success is often their ability to offer lower prices; however, companies do need to consider when and how discounting might be more significant than in their prelaunch market models.6 This has led originator companies to compete with different approaches, including with modified commercial terms. Others have launched biosimilars of their own, sometimes with notable success. When Darbepoetin AL KKF launched in Japan as a biosimilar to its originator drug Nesp, for instance, Darbepoetin AL KKF achieved ten times the market share of the other three biosimilars combined.7

Most biosimilars in the United States have been launched with a relatively small discount—less than 10 percent of the average sales price—and an average 10–15 percent annual price reduction thereafter. Companies need to consider how this practice may change as more biosimilars come onto the market, including those for chronic diseases where there are more than five competing products. For instance, the launch of up to eight adalimumab biosimilars in the United States in 2023 could trigger specific dynamics to this market. Biosimilars companies should consider the right channel and approach for each drug in each market. Different companies are likely to adopt very different strategies and positions across channels, accounts, and formularies.

Finally, as regulation-restricted access to healthcare professionals puts pressure on pharma, biosimilars companies—even more than innovative drug companies—will need to review their channel strategy. In Europe, newer biosimilars coming into market for new molecules previously unlaunched are taking more volume share than before. In order to maintain competitiveness and sustainability, biosimilars companies need to make remote engagement a central plank of their commercial model to improve their cost of sales while also boosting physician engagement (see sidebar, “Managing under COVID-19”).

Portfolio management: Take a differentiated approach and scale up quickly

As new generations of drugs emerge to replace standards of care, the commercial lifecycle of biosimilars is shrinking, prompting companies to act quickly to select their next wave of products. Between now and 2030, biologic products worth some $170 billion will lose patent protection (Exhibit 3). More than 45 of these molecules record billions of dollars in annual sales. And while blockbuster biologics off patent typically post annual volumes of more than 1,000 kg, at the opposite end of the scale, many have much smaller annual volumes of less than 500 kg.

As blockbuster brands lose exclusivity, biosimilars companies need to quickly decide where to compete.

Given that production scale affects technology choice, unit cost, and cost of goods sold, such wide disparities argue for a differentiated approach to portfolio strategy. Companies will need to treat production volume as an added consideration in their decision making alongside traditional factors such as therapeutic area, revenue size, synergies with current portfolio, number of candidate products, development sequencing, geographic scenarios, and competition monitoring.

Clinical and manufacturing complexity is another key aspect of portfolio management. Having more products in simultaneous development means more trials, more sites, more patients to monitor, and more staff to coordinate. Managing a large portfolio is likely to be feasible only for companies that have deep in-house R&D capacity or that work closely with strategic partners and contract research organizations. In manufacturing, having a larger portfolio with smaller volumes per drug could mean that one production line is shared between four or more molecules rather than the usual one or two, adding to the challenges of managing switches from one molecule to another.

As well as choosing the right products for their portfolio, companies need to adopt more flexible and innovative pricing and contracting practices, such as performance-based and indication-based approaches. Introducing new manufacturing technologies, such as modular factories tailored to low-volume production, is another way for companies to differentiate themselves and cater to niche markets.

R&D: Accelerate development and reduce costs

Companies seeking to be first to market with a biosimilars also need to accelerate their drug development. A McKinsey analysis of seven biosimilars launches in Europe shows that the three top-selling biosimilars for a range of molecules tend to be early entrants and capture more than 90 percent of the market between them (Exhibit 4).

Early entrants with biosimilars launches typically capture the largest share of the market.

In the meantime, the biosimilars industry needs to reduce its costs, particularly in drug development, to preserve its sustainability. A typical biosimilar today costs between $100 million and $300 million to develop, with clinical trials accounting for more than half of the budget. To lower costs, companies could reduce the size of clinical trials by redesigning development plans. The European Medicines Agency suggested the possibility to waive immunogenicity trials for insulin biosimilars in 2015 under certain conditions,8 and the FDA did likewise in its 2019 draft guidance on developing biosimilars and interchangeable insulin products.9

Companies seeking to adopt lean models of biosimilars development could also look to rapidly evolving technologies such as data platforms and data analytics to help reduce the residual uncertainties that require new biosimilars to be subjected to human trials.

The biosimilars industry is a dynamic business with rapid growth and a deepening impact on health systems. As the United States accelerates its biosimilars journey, a new set of molecules lose exclusivity, and regulatory and market structure evolve, the momentum can only increase. By innovating the commercial model, reducing time to market, and managing portfolios and development costs, companies can bring more biosimilars to market and faster. A flourishing biosimilars market could broaden patients’ access to advanced treatments at more affordable prices and alleviate healthcare costs. Payors and providers could use the savings to improve overall patient care.

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