Financial viability of biosimilars depends on originator sales and market entry order
A financial valuation study proposed a framework for selecting candidates for biosimilar development by determining the circumstances under which the biosimilar may be financially viable. The authors stated that selecting a biosimilar candidate “requires detailed and careful analysis to ensure value creation.”
In the room Posted in Expert Review of Pharmacoeconomics Research and Results, investigators used the Net Present Value (NPV) model to assess financial viability. The 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 originator sales categories under a base case scenario and various other scenarios with different development costs, sales, expenses and discount rates. The authors also noted several other factors that can influence the choice of a biosimilar candidate, such as technical complexity, company presence in the therapeutic area, and anticipated competition.
Weak originator sales associated with “certain financial risks” for a biosimilar candidate
The investigators identified 3 candidates for the development of anti-interleukin (IL) monoclonal antibody biosimilars, 1 from each of the 3 categories of worldwide sales of the reference product in loss of exclusivity: 1 to 4 billion dollars were considered to be low sales, $4-7 billion was considered medium sales, and $7-10 billion was considered high sales. The IL-5 antibody mepolizumab was chosen for the low-selling candidate, secukinumab, an antibody targeting IL-17A for the medium-selling candidate, and the dupilumab IL-4A antibody for the high-selling candidate.
According to their basic case analysis, the authors stated that, overall, pursuing an originator biosimilar candidate 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.
Market entry order was also “a very important factor”, affecting financial valuation. The NPV of a low-selling biosimilar was favorable with a market entry order of up to 3 (originator plus 2 previous biosimilars). However, at a market entry order of 3, their calculations predicted that a low-selling biosimilar would not cover the cost of development within 11 years of commercialization. At the entry order of 2, they estimated that the development cost would be covered after 8 years.
In contrast, for medium- and high-selling originators, the NPV of biosimilar candidates was favorable with an entry order of up to 6. A medium-selling biosimilar candidate with an entry order of 4 had to cover its development costs after 6 years on the market. . For high turnover, the development cost was estimated to be covered within 3 years for a market entry order of 3.
Influence of development costs and other expenses, discount rate on the financial evaluation
To cover various scenarios based on product development, competition, and marketing strategies, researchers performed sensitivity analyzes to determine the risk-adjusted NPV (rNPV) of each biosimilar with changes in development costs, cost of goods (COG), SG&A (selling, general and administrative expenses), sales and discount rates.
The rNPV of a low-selling biosimilar was favorable in 8 of 14 predefined scenarios, a medium-selling biosimilar was favorable in 12 of 14 scenarios, and a high-selling biosimilar in all 14 scenarios. The authors determined that the rNPV of a biosimilar with low sales “has a higher sensitivity to sales, discount rate and cost of development, while the rNPV of biosimilars with medium and high sales has a higher sensitivity. high at the discount rate followed by sales”.
Selection framework for biosimilar candidates
Based on their findings and industry best practices, the authors recommend the following framework for screening biosimilar candidates:
- Identification: identify the therapeutic class and type of product
- Screening: Consider therapeutic area, originator sales, originator efficacy and safety, potential competition, fit to company capabilities, and intellectual property
- Financial assessment: use standard and risk-adjusted NPV in multiple scenarios, as done in current analysis, identify scenarios with favorable and unfavorable NPV
- Selection: select a candidate “with a robust NPV in all scenarios based on sensitivity analysis, adequate return on investment and portfolio composition”
- Map product development path and strategy: plan resource allocation, engagement with regulators, development strategy and timelines
- Continuous validation: continuously validate assumptions and financial valuation estimates based on market developments
Finally, the authors provided a list of mitigation strategies to address negative influences on the financial evaluation of biosimilar candidates, including high development costs, low sales, high COGs, high general and administrative costs, and the high discount rate.
Patel R, Nuwal T. Financial assessment of value-creating biosimilar development candidates: a case study of low-, medium-, and high-selling biosimilars. Expert Rev Pharmacoecon Results Res. 2022;1-19. doi:10.1080/14737167.2022.2072830