Biocon: Taking a Crack at the Global Biosimilar Market

Introduction

Throughout mid-July 2015 to the first quarter of 2017, the Biocon Chairperson, Kiran Mazumdar Shaw, has been one happy woman. On 29 July 2015, NDTV Profit reported, ‘In a strong show, the ₹550-crore initial public offer (IPO) of biotechnology major Biocon’s research arm, Syngene International, was oversubscribed 32.03 times on its last day on Wednesday as both retail and institutional investors bid aggressively for the shares.’ The rally boosted the market, and there was a general sense that other companies may follow the suit. It seemed like Ms Shaw’s pioneering effort in the field of biotechnology in India is finally getting its due.

However, in developing countries, pharmaceutical product manufacturers face a unique array of problems; the safety of products being one big area of concern. A similar shadow of operational difficulties is looming large on Biocon as well, despite being one of the most R&D intensive firms in India. On 11 August 2015, when Syngene jumped to ₹310.40 by gaining 24.16 per cent, Biocon ended the day with a loss of 0.71 per cent at ₹461.90. On 24 August, Biocon slid further down. The fall comes at approximately the same time when the exchange sought clarifications from Biocon regarding the ‘United States Food and Drug Administration (USFDA) observations’ regarding inspection at Biocon’s facilities. ¹ Although Biocon responded that such inspections are routine, and the matter has been closed with FDA, this comes at the background when severe violations have been reported over an extended period of time in this sector in India. In 2013–2014, severe violations at some of the manufacturing facilities of Ranbaxy highlighted the issue of safety in manufacturing. There were allegations against Ranbaxy that the company has ‘systematically violated’ current good manufacturing processes (CGMP). ² Ranbaxy USA pleaded guilty to several of the charges and agreed to pay US$500 million in civil and criminal fines in 2013. In 2014, Gujarat-based Marck Biosciences received a warning letter from the USFDA for the violation of CGMP and for working with malfunctioning equipment in its plant in Kheda (in Gujarat). By the middle of year 2015, the USFDA has already issued warning letters to quite a few Indian pharmaceutical companies for violation of CGMP either for active pharmaceutical ingredients (APIs) or for finished pharmaceuticals. ³

So far, Biocon has a clean record with regulatory agencies, including the FDA. The company takes pride in its ethical standards. But the perils of operating in an environment of general mistrust are all too real. As Biocon strategically position itself in the relatively new biosimilar market, it has forged alliances with other pharmaceutical companies, like Mylan. In August 2015, Mylan received a warning letter from the FDA regarding three of its manufacturing facilities in Bangalore identifying severe violations of CGMP. In July 2017, the French National Agency for Medicines and Health Products Safety visited Biocon’s biosimilar manufacturing facility in Bangalore and found deficiencies in the manufacturing process. Following the development, share prices of Biocon took a hit on 10 July 2017. Within the same week, Biocon–Mylan received recommendation for approval for their biosimilar trastuzumab by a committee of the USFDA. The final approval came later in 2017.

As Biocon seeks out more prominence in the US markets, the perennial suspicion of low production-quality standards in the Indian manufacturing can potentially become a serious roadblock. Can Biocon highlight the Indian tradition of frugal innovation without letting the burden of the Indian quality hamper its expansion in foreign markets? Safety issues are particularly important for producing biosimilars whose complex manufacturing process makes it hard for even seasoned generic manufacturers to get a foothold in this market. Can Biocon emerge as a major player in the biosimilar market?

Biocon and Kiran Mazumdar Shaw

History of Biocon as a leading Indian pharmaceutical company is the story of the rise of Kiran Mazumdar Shaw as a leading Indian entrepreneur. Ms Shaw, daughter of the head brewmaster at United Breweries, studied malting and brewing from the University of Ballarat (now, Federation University) in Australia and became the first women brewmaster from her class in 1975. She returned to India and, after a series of brief stints at some of the Indian breweries, started a venture of manufacturing peptins from her Bangalore residence in 1978, starting Biocon India. ⁴

In 1978, Ms Shaw entered into a joint venture with Biocon Biochemicals of Ireland (with 30% ownership) and Biocon India was incorporated. Funding sources were fewer, and the enzyme technology was a new concept. The sensitivity of the procedures involved meant having access to uninterrupted power as well to recruit the right people for the job. ⁵ Ms Shaw faced hurdles at every point, starting from the common problem of procurement of raw materials to additional discrimination because of her gender. ⁶ She persisted through it all. The company came up with a portfolio of innovative enzyme products and developed a fermentation platform. Biocons first-marketed product was an enzyme derived from papaya called peptinpapain. ⁷ The business picked up slowly. In 1979, Biocon became the first Indian company to export enzymes to the USA and the European markets. By 1990, Biocon became a major player in the enzyme business with solid research and propriety fermentation technology.

In 1989, Irish Biocon was acquired by Unilever, and after changing a few hands Biocon India was sold to John Shaw, Ms Shaw’s husband in 1998. Biocon India thus became an independent entity.

Ms Shaw had been interested in venturing into biopharmaceuticals by the early 1990s but was not getting much encouragement from Unilever at that time. By the mid-1990s, Biocon ventured into biopharmaceuticals in a big way, starting with insulin and statins. Ms Shaw also established Syngene in 1994 as a custom research company.

In-house R&D at Biocon got a huge boost, when Biocon’s propriety bioreactor, PLAfractor, got an international patent in 2001. This technology provided enhanced manufacturing capability of high-value pharmaceutical products. ⁸ This development came in the heel of Biocon’s decision to establish India’s first clinical research organization, Clinigene.

Biocon’s in-house R&D started showing results with the development of oral insulin using the Pichia expression system. ⁹ This was followed by the launch of fermentation method and submerged fermentation techniques of INSUGEN. In 2001, Biocon became the first Indian company to get USFDA permission to sell statins in the US market.

In addition to developing its insulin and statins, Biocon also pursued the oncology segment. In 2006, it launched BIOMAb EGFR for targeted cancer treatment (head and neck cancer). Biocon’s oncology portfolio now consists of products treating breast cancer (Abraxane, CANMAb and ATSURE), renal cell carcinoma (Evertor and Genxtor) and prostate cancer (ABSTET). In 2007, Biocon launched its nephrology division. Its portfolio in this division now includes immunosuppresants (CYCLOPHIL ME, RAPACAN and RENODART), for the general treatment of transplant patients (such as TACROGRAF, Advacan and CYMGAL) and for treating anaemia (ERYPRO, FeVein).

Biocon and Biosimilars

In 2007, Biocon entered into an agreement with Abraxis BioScience to develop a biosimilar version of protein G-CSF. ¹⁰ The G-CSF is a protein that stimulates the production of white blood cells and is mainly used to treat the adverse effects of the chemotherapy in cancer patients or in patients with HIV/AIDS. One of the pharmaceutical variants of this protein is called filgrastim and was first marketed by Amgen. ¹¹ These kinds of specialized ‘large-molecule’ pharmaceutical drugs made of or containing biological entities are called biologics. Biosimilars are biological entities that are copies of the original biologics.

Biologics are increasingly being used for targeted treatment of cancer, diabetes and autoimmune diseases, like rheumatoid arthritis. Global biologics sale in 2017 has crossed US$220 billion or about 20 per cent of the total pharmaceutical sales. From 2016 to 2024, the market is set to expand at 10.9 per cent of the compound annual growth rate (CAGR). By the most conservation estimate, the biologics market will be worth US$399.5 billion by 2025. The North American market is currently seeing the most growth with the next phase of growth coming from Asia. Biologics, unlike the chemically derived pharmaceutical products, are large, complex molecules and are produced from living molecules. Small-molecule drugs have known chemical structure, and therefore their production quality depends on the technology and is relatively easy to get a consistent, pure quality. Biologics are targeted (targeting a gene or a protein) and often prescribed when the traditional medicines fail (Morrow & Falcon, 2004). However, the production processes are complicated and extremely sensitive to external conditions. For biologics, ‘the product is the process’.

The unique characteristics of biologics create unique problems for this market. They are expensive to produce and are produced in small batches. Biologics are used for targeted therapy and used more generally in cases where there are complications or in rare genetic diseases. The market size is, therefore, relatively small both in terms of patients and disease profile. Also, because of their uniqueness and expensive manufacturing process, biologics are expensive to consumers. One-year supply of Herceptin in the USA costs more than US$70,000 while Humira costs about US$50,000. This is where the biosimilars come in. Biosimilars are imitations of biologics, but unlike the small-molecule generic drugs they are not exact copies. Rather, biosimilars have ‘no clinically meaningful difference’ with biologics and are considered to be similar in terms of effectiveness and safety. ¹² Biosimilars are cheaper. By some estimates, the European countries have seen savings in the order of 5–30 per cent. The USA alone can potentially save close to US$250 billion by 2025. The savings can potentially add up to even bigger numbers if manufacturers in developing countries manage to reduce prices further. In India, for example, Dr Reddy’s sells biosimilar rituximab at about 50 per cent of the price of the original biologic by Roche. This is why the regulatory authorities in the developed countries, particularly the USA and the European countries, are looking at global biosimilar developments with interest.

Compared to the biologic market, the global biosimilar industry is still small, worth over US$3.3 billion in 2017, but growing. Current projection put the growth rate of this market above 25 per cent between 2017 and 2023. By 2023, the market is projected to be valued at US$10.5 million. ¹³ The Indian pharmaceutical companies have noticed the trend, and the large ones are all in the process of building up their biosimilar portfolios (Dhanorkar, 2016). Dr Reddy’s is another company with an expanding biosimilar portfolio and is reportedly spending 40 per cent of its R&D budget in developing biosimilars. It has already developed biosimilar version of pegfilgrastim and rituximab ¹⁴ and is developing two new biosimilars of trastuzumab and bevacizumab. ¹⁵ Another company, Hetero Drugs has also developed biosimilar version of rituximab (Pilla, 2016), while Lupin is about to file its biosimilar, etanercept. ¹⁶ The Indian pharmaceutical industry has demonstrated its capability in manufacturing generic drug, and some of the same companies are hoping that they would be able to replicate that model for biosimilars. However, the transition from small-molecule generic drug manufacturing to biosimilar manufacturing is far from trivial.

As mentioned before, manufacturing biologics/biosimilars is a complex process compared to that of small-molecule drugs. Small-molecule drugs have known chemical structure, and hence it is relatively easy to manufacture, with consistent quality, both the original drug and its generic versions. Biologics or biosimilars can have 1,000 times the number of atoms of a small-molecule drug, and the process of manufacturing involves sophisticated equipment and a high degree of plant-level and overall expertise. The implication of this is that the production involves high fixed cost and generally proceeds in small batches. This also means that copying biologics is a relatively complicated process, as well as it requires in-house capabilities to deal with complex operational issues related to biopharma. All these points to a market structure that is more concentrated than generic pharmaceuticals. As the traditional Indian pharmaceutical sector is getting more and more crowded, the larger ones are seeking to expand to new markets where they can potentially start with an advantage. Biosimilars seems like one such opportunity.

The current bundle of biologics is limited to a few specific ailments, namely oncology and rheumatology, but increasingly expanding to products that treat cardiac, dermatological and gastroenterological problems. As the biologics expand to treat other broader categories of diseases, the biosimilar market will also receive further boost. The major markets are right now in the developed countries. But well-developed domestic pharmaceutical industries in the developed as well as the developing countries have already spotted this lucrative market. In China, quite a few companies are showing interest in expanding their biosimilar portfolios in 2017. ¹⁷ Other Asian countries, like South Korea, are also joining the fray. ¹⁸ The new entities are counting on the fact that a number of blockbuster biologics have either already lost or soon going to lose patent protection in the coming years. Twelve biologics, including blockbusters, such as Herceptin, Humira and Remicade, will be exposed to the global competition by 2010. ¹⁹

Biocon has approached the biosimilar market with vigour. In 2013, Biocon launched Alzumab in India for treating psoriasis. This is a proprietary monoclonal antibody developed by Biocon for psoriasis. In 2014, Biocon introduced the biosimilar version of Roche’s Herceptin (trastuzumab) in India (in the brand name, CANMab) for treating metastatic breast cancer. In 2015, it launched Insulin Glargine biosimilar in Mexico for treating diabetes mellitus. In 2016, Biocon launched Insulin Glargine (in the brand name, Basalog) and preregistered for type 1 and type 2 diabetes mellitus in the European Union (EU). Insulin Lispro biosimilar is also in the pipeline for treating type 1 diabetes mellitus in India. Biocon is also developing a Lantus biosimilar for the EU market. In 2016, Biocon launched BIOMab EGFR (nimotuzumab) for head and neck cancer in India under the licence from its developer, CIMYM BioSciences of Cuba. In February 2017, USFDA accepted to review Biocon–Mylans biosimilar version of Amgens Neulasta.

In terms of foreign collaborations, Biocon has a long-standing partnership with Mylan starting from 2009. Mylan is a US-based generic pharmaceutical company. The partnership includes six biosimilar programmes and three insulin analogues. ²⁰ Biocon has also been expanding its network in other directions. It has an array of biosimilars in its portfolio and has invested US$161 million to set up an insulin manufacturing plant in Malaysia in 2010. It has also purchased an API facility from its supplier, Acacia Life Sciences, in October 2015. In July 2017, Biocon–Mylan received the all-important recommendation for the approval from USFDA’s Oncologic Drug Advisory Committee. The final approval came in December 2017.

Emphasis on Developed Country Markets

According to Biocon’s 2015 annual report: ‘Our R&D principally focuses on novel molecules, biosimilar and complex small molecules.’ With respect to insulin and analogue, as well as mAbs and recombinant proteins, the focus of Biocon is on the international market. As mentioned before Biocon’s Insulin Glargine has been launched in Japan and Malaysia. Biocon also plans to launch the same in the EU, the USA, Canada and Australia and is in the process to obtain the regulatory clearances in each of these areas.

In line with its international expansion agenda, Biocon has been actively seeking co-development of crucial biopharma products with foreign generic drugmakers. Biocon’s collaboration with Mylan has created one of the most impressive biosimilar pipelines in India. Mylan is crucial for Biocon’s foray into the International biosimilar market. The co-development portfolio consists of high-value biosimilars, like trastuzumab. In 2017, Biocon/Mylan filed for two biologics licence applications in the USA and three marketing authorization applications in the EU. ²¹ Similarly in 2016, Biocon launched Insulin Glargine in Japan after partnering with Japanese pharmaceutical company, Fujifilm Pharma.

The focus on developed countries stems from the impressive profit numbers. The biologic market now accounts for 20 per cent of the sales of all pharmaceutical products, and the market is growing at a rate of 5 per cent. The largest markets are in the USA and in the EU, followed by Japan. Biocon is focused on the former two markets, because together they constitute the bulk of the biologic market. The US market alone is worth more than US$100 billion in 2015 and expected to be growing a rate of more than 6 per cent. The USA and the EU together account for more than three-fourths of the market. That the biologic industry has done well in the developed countries and particularly in the USA is not a surprise, given the high price of producing high-quality biologics and their niche applications. Not surprisingly, biosimilars are also finding their markets in those very same regions where the original biologics are developed or used. For example, the market of trastuzumab in the USA alone is estimated to be US$6.9 billion while that for pegfilgrastim is US$4.6 billion. For a biosimilar manufacturer, therefore, the US and the EU markets are crucial. Through the co-development and partnerships, Biocon is trying to access those developed country markets. At the same time, it is also modernizing its manufacturing facilities to be able to supply insulin analogues and other biosimilars of acceptable quality. As mentioned earlier, the timing for focusing on these countries is right because of large-scale patent expirations that are about to happen. ²² This has opened up the market for biosimilars, where the growth rate is expected to be in double-digits. ²³

Governments in developed countries are increasingly encouraging the use of biosimilars. High cost of biologics, together with their increasing, use has ignited interest among policymakers regarding biosimilars. Although the Federal Trade Commission has noted that savings on biosimilars are not as pronounced as that in generics (estimated in between 15%–20% of the original biologic), the savings can amount to US$44.2 billion by 2024 (Mulcahy, Predmore, & Mattke, 2014). The 2010 Affordable Health Care Act enhanced the urgency of cost savings. Biologics Price Competition and Innovation Act legislated in March 2010 has provided the regulatory framework for approval and marketing of biosimilars and/or ‘interchangeables’ (with respect to the reference biologic product). The FDA has also released a guideline for interchangeability in 2017 (Mezher, 2017). ²⁴ With the new administration in place, whose one of the main agendas is to repeal ACA, it remains to be seen what happens to the biosimilar pathway.

Irrespective of the latest development, biosimilar products are increasingly finding a foothold in the USA, as is evident from the entry of the biologic majors in the biosimilar market. In 2015, Pfizer, one of the biotechnology giants, acquired Hospira, a US-based manufacturer of injectable drugs and biosimilars. The acquisition helps expanding Pfizer’s manufacturing capability and also to tap into Hospira’s biosimilar capability and market. At the time of the acquisition, Hospira was planning to enter the EU market with a biosimilar version of Remicade (infliximab; originally developed by Janssen Biotech). ²⁵ The cost savings from the biosimilar was estimated to be between 20 and 30 per cent (Japsen, 2015). In 2016, USFDA approved Hospira–Pfizer’s biosimilar, Inflectra, for the US market.

Similar developments are also observed in some European countries as well. For example, Germany, Denmark and the Netherlands have introduced several incentive programmes to encourage development and marketing of biosimilars. As early as 2014, biosimilar version of Remicade was being sold across Europe. The biosimilar, Remsima (developed by Celltrion Healthcare), was initially selling at a discount of about 40 per cent compared to the biologic. By 2016, the discount has risen to almost 70 per cent, as well as the market share (Naik & Kumar, 2016). The biosimilar is also expected to save US$90 million in the UK’s National Health Service alone.

The biosimilar market is, therefore, heating up. On the one hand, generic (small-molecule) pharma companies are seeking each other’s help in the form of research collaboration and enhancing manufacturing capabilities. On the other hand, biologic manufacturers themselves are entering the biosimilar market. The top five global biosimilar developers in 2016 were Sandoz, Teva, Hospira, Stada Arzneimittel and Mylan. Out of those, Sandoz is the generic/biosimilar division of Novartis. Hospira has been acquired by Pfizer. Teva, the Israeli generic powerhouse, has entered into multiple collaboration to develop biosimilars with a variety of other pharmaceutical companies. Notable among them are Teva’s collabotation with the Korean company, Celltrion, to develop trastuzumab (Herceptin) and rituximab (Rituxan) biosimilars. The German company, Stada, has been collaborating with Gedeon Richter (Hungary) to develop trastuzumab and rituximab. As mentioned before, Mylan is collaborting with Biocon to develop multiple biosimilars, including trastuzumab.

Can Biocon Emerge as a Major Player?

Biocon is the number one manufacturer of biosimilars in India. But can it maintain the lead domestically? Can it emerge as a major international player? This will, of course, depend on both external and internal factors. The external regulatory environment is a major determinant of success.

Another important factor is the external supervision and checks conducted by the foreign agencies. This connects directly to the issue of safety and, hence, of reliability. This is where Indian companies need to pay attention. As noted earlier, production quality problems have been haunting the Indian pharmaceutical manufacturers for some time; the biggest scandal being the one involving Ranbaxy. It did not help the global public opinion that the Drug Controller General of India never conducted an investigation, even after the extent of violations became public information.

While there is some evidence that the biosimilar market is heating up, it is still a bit early to declare that biosimilars are the next big things for pharma industry. For one thing, despite the excitement surrounding the biosimilar market, the regulatory environment has proven to be one of the stumbling blocks. As mentioned before, biosimilars are not like small-molecule generics and, hence, the substitutability is a big regulatory issue.

However, the unique challenges of India still remain. The Indian pharmaceutical industry has been a success story in a lot of ways. The Indian generic drugmakers have effectively challenged the traditional, large global pharmaceutical companies for the last few decades. However, even post-TRIPS, the R&D intensity of the Indian pharmaceutical companies remain much lower than those of international companies with some studies reporting that more than 60 per cent of the firms do not engage in any R&D activity at all (Pradhan, 2003). In 2016, while the top 15 international pharmaceutical companies were spending more than 17 per cent of their net sales in R&D, Indian companies were spending between 7 and 7.5 per cent. But as compared to the previous years, some of the top firms have increased their R&D expenditures significantly. ²⁶ Biocon has been an outlier in that respect. In 2016, Biocon expenditure on R&D was close to 10 per cent of revenue. As of now, Biocon is committed to investment in both biosimilars and biologics. While Biocon’s biosimilar market expansion is often discussed, Biocon is also actively seeking entry into the biologics market. The ‘novel biologics’, Biocon is targeting are going to be part of their insulin, oncology and autoimmune disease portfolio. In 2006, Biocon launched BIOMab EGFR in India. Although nimotuzumab was developed at the Center for Molecular Immunology in Cuba, it was licenced to Biocon, and the clinical trials were conducted in India. This was Biocon’s the first humanized monoclonal antibody. In 2013, DCGI approved Biocon’s biologic, Itolizumab, for the treatment of psoriasis in India. Biocon marketed that under the name Alzumab. The development of Alzumab paved the way for Biocon to discover other ways of using Itolizumab for treatment of other autoimmune diseases, such as rheumatoid arthritis and multiple sclerosis. As of 2017, Itolizumab is doing well, with clinical trials due to the start in Australia. In 2016, Biocon received permission from DCGI to conduct clinical trials of small-interfering RNA therapy for the treatment of the acute eye condition called the non-arteritic ischemic optic neuropathy. Biocon is collaborating with Quark Pharmaceuticals (of the USA) to co-develop this therapy. This is a novel therapeutically given treatment that there is unmet demand in the market, and the hope is that this line of treatment also has the potential of treating other eye ailments caused by the damage of optical nerves.

Can Biocon emerge as a strong company in the domain of biologics and biosimilars? While Biocon does seem to have the necessary ingredients in place, a lot will be determined by the external factors. The role played by the regulatory environment in various countries is partly going to determine the geographical location of biosimilar development. The data exclusivity is one area of much debate (Greene, 2007). There is no law favouring data exclusivity in India. The Central Drugs Standard Control Organization (CDSCO) had released new guidelines for biosimilar developers in 2017. The new provision of getting reference biologic licence from any country (if the biologic is not marketed in India) is another contentious issue. The National Pharmaceutical Pricing Authority’s intervention in biologics/biosimilars pricing is another area of concern. The regulatory environment in India and in the potential markets, as well as the frantic mergers and acquisitions (M&A) in this industry, are going to determine the profitability of the domestic firms, including that of Biocon (Bajaj, 2016).

Biocon is up against the pharma giants in the market for biologics. Although Biocon has launched products for the Indian market, the target markets are elsewhere. Biocon does not have any comparative advantage in those markets as the original developers of biologics. The 10 largest biologic manufacturers have a long history of discovery, development and commercialization in the highly lucrative markets. Given that this is a US$10 billion market, there is no reason to believe that these companies are going to lower their efforts although, as mentioned earlier, some of their important patents have either already expired or are about to expire. Some of the biologic giants are also developing products for the biosimilar market. The biologic and biosimilar market players can be categorized in a few groups: biologic giants, established biosimilar companies, innovation-driven smaller companies, generic giants and smaller generic companies with local ties. Biocon (of revenue less than US$0.5 billion in 2017) and the rest of the Indian companies who have entered the biosimilar space fall in the last category. Teva and Mylan (each with revenue greater than US$10 billion) are considered generic giants, while Amgen and Merck are considered bio-powerhouses. The large companies will work out their biologic and biosimilar portfolios, their delivery mechanisms and distribution networks over time. The generic giants will try to develop capabilities and will seek out local partners, like the ones we have seen between Mylan and Biocon in India. It is unlikely that the local firms are going to play a major role in the global biosimilar market anytime soon.

On the other side, with respect to the FDA compliance, Biocon’s record is relatively good. The manufacturing facility in Malaysia can allay some of the concerns regarding drug safety. Biocon’s biologics and biosimilars have performed well in India and in other countries. Syngene, a Biocon subsidiary, is the largest contract research organization in India. Syngene has some of the largest biologic manufacturers (like Amgen) as their clients. Apart from being a stable source of revenue, development of research capability at Syngene can have spillover effects. If Biocon manages to get approvals for some of the products in its portfolio in the USA and in the European countries and manages to reduce prices substantially, then it can emerge as an important player in the biosimilar market.

Postcript: In November 2017, USFDA inspected Biocon’s manufacturing facility at Bengaluru again, following the May–June 2017 inspection. While the previous inspection reported violations, USFDA has cleared Biocon this time by issuing an established inspection report. This news raised Biocon’s shares by 7 per cent.

Declaration of Conflicting Interests

The author declared no potential conflicts of interest with respect to the research, authorship and/or publication of this case.

Funding

The author received no financial support for the research, authorship and/or publication of this case.