Biotech companies like Amgen (AMGN), Gilead Sciences (GILD) and Biogen (BIIB) are aiming to close the gap with pharmaceutical companies by hawking new medicines like biologic drugs and their copycat counterparts, biosimilars.
Still, Big Pharma players — like AstraZeneca (AZN), Eli Lilly (LLY) and GlaxoSmithKline (GSK) — are prepared for fisticuffs as they push new small-molecule drugs and generics that take share as low-cost knockoffs.
Thus far in 2018, the Food and Drug Administration has approved 17 applications for biotech companies to sell biologic drugs, compared with 22 in all of 2017. But 2018 has also been a massive year for drugs from the pharma side with 55 approvals, rising from 46 last year.
So where do biologics and biosimilars fit into the scheme of small-molecule pharmaceuticals and generics? In other words, what’s the difference between biotech and pharma?
Biologics Stem From Live Cells
The strictest definition says biologic drugs only come from living systems or contain organic molecules, whereas small-molecule pharmaceuticals largely come from chemicals. Often, biologics are injected. If it’s swallowed, it’s probably not a biologic drug.
Because biologics use live materials, they must undergo extensive testing. From a scientific perspective, biologic drugs usually contain large-protein molecules that interact with specific cell receptors. Pharmaceuticals often are referred to as small-molecule drugs.
“It is difficult, and sometimes impossible, to characterize a complex biologic by testing methods available in the laboratory,” says the Biotechnology Innovation Organization. “And some components of a finished biologic may be unknown.”
Therefore, in biologics “the product is in the process,” the organization said in a post.
For example, AbbVie‘s (ABBV) Humira is the best-selling biologic drug in the world. In 2017, it brought in more than $18 billion in sales. Humira contains 1,300 amino acids. So replicating Humira exactly without AbbVie’s formula would be impossible.
Moneymakers For Biotech Companies
Other biologic drugs include immunotherapy cancer treatments like Merck‘s (MRK) Keytruda and Bristol-Myers Squibb‘s (BMY) rival Opdivo. In 2017, a gene therapy known as Luxturna, from Spark Therapeutics (ONCE), joined the list of biologics, as did CAR-T cancer drugs from Novartis (NVS) and Gilead.
Biologic drugs tend to be more expensive than their pharmaceutical counterparts due to the fact that they require more extensive testing. Roche (RHHBY) subsidiary Genentech became the first publicly traded biotech company in 1980.
Since then, the number of biotech companies on the Nasdaq and New York Stock Exchange has exploded. Investor’s Business Daily counts more than 500 publicly traded biotech companies in the U.S. The industry group is ranked No. 73 out of 197 groups.
Top-rated biotech companies include BioSpecifics Technologies (BSTC) and Alexion Pharmaceuticals (ALXN), which both have IBD Composite Ratings at or above 95.
Pharmaceuticals Are The Incumbents
Pharmaceuticals, or small-molecule drugs, tend to treat larger populations and more common maladies. This allows pharmaceutical companies to offer their products at lower prices and still recoup drug-development costs.
They rely on chemicals as their active ingredients and have well-defined chemical structures that can be replicated with complete confidence. As a result, small-molecule pharmaceuticals are, in general, less complex and costly to develop than biologic drugs.
Modern pharmaceuticals can trace their origins back to apothecaries that sold painkillers, and chemical companies beginning in the 1880s, according to Chemical and Engineering News.
There are fewer pharmaceutical companies than biotech companies, but members of the former are much larger. Big Pharma giant Pfizer (PFE) has a market cap north of $261 billion, whereas the biggest biotech company, Amgen, is worth around $126 billion.
Examples of small-molecule pharmaceuticals include AstraZeneca’s Nexium, which can treat a gastroesophageal condition and lowers the risk of bleeding, and GlaxoSmithKline’s asthma inhaler Advair. In 2017, these drugs generated a respective $1.95 billion and about $4 billion sales.
In an effort to stoke competition — and undercut prices — the FDA is pushing companies to work on generics and biosimilars.
Generic drugs are lower-cost versions of branded small-molecule pharmaceuticals. In the U.S., nine out of 10 prescriptions filled are for generic drugs, according to the FDA.
To gain approval, pharmaceutical companies like Teva Pharmaceutical (TEVA) and Mylan (MYL) must show their generic drugs contain the same active/key ingredient, have the same strength, use the same dosage and the same route of administration as the branded drug.
“FDA’s review process ensures that generic medications perform the same way in the human body and have the same intended uses as the name brand medication,” the FDA says.
Examples of generics include copies of Teva’s multiple sclerosis drug Copaxone from Mylan and Novartis with partner Momenta Pharmaceuticals (MNTA). In the third quarter, Teva said Copaxone sales declined 7% globally.
Can Biosimilars Rival Biologics?
Biosimilars are nearly identical copies of biologic drugs. The name signifies that biosimilars are “similar” to biologics, but not 100% identical. To grab FDA approval, biosimilars must prove in tests to have “no clinically meaningful differences” from their branded counterparts.
In total, the FDA has approved 15 biosimilars. They began launching in Europe in 2006 and in the U.S. in 2015. Europe has a vastly great number of biosimilars approved — more than 50. This year, biosimilar versions of AbbVie’s Humira launched in Europe from Amgen, Novartis and Biogen.
Other examples of biosimilars include Pfizer’s Nivestym and Mylan’s Fulphila — biosimilar versions of bone-marrow stimulating biologics from Amgen called Neupogen and Neulasta. In 2017, the two biologics generated more than $5 billion in sales for Amgen.
Biotech companies and pharmaceutical companies, alike, are working on biosimilars, with a similar push from makers of generic drugs. Their biggest targets include inflammation biologics like AbbVie’s Humira, Johnson & Johnson‘s (JNJ) Remicade and Amgen’s Enbrel.
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