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On March 6, 2015 the U.S. FDA approved Sandoz’s Zarxio (filgrastim), the first biosimilar product approved in the United States under the new 351,000 biosimilar pathway mechanism. This decision has profound implications for the pharmaceutical industry.

What is a biosimilar product?

A biosimilar product is a biological product that has been approved based on clinical studies which are highly similar to an already-approved biological product, known as a reference product. In the Sandoz case, Zarxio is a copy-cat version of Amgen’s cancer drug Neupogen – a US$7 billion per annum product. The biosimilar must show it has no meaningful differences in terms of safety and effectiveness from the reference product.

Biosimilar drugs have been available outside the U.S. for a few years in limited quantities. In Europe they tend to cost 15-30% less than branded products. In the U.S. it is anticipated that Biosimilars will likely come in at significant 50 per cent discount to the innovator list prices. Industry analysts anticipate key biologic revenues to erode globally from US$65 billion to US$30 billion between 2017-2024 producing both winners and losers. Giant U.S. pharmacy benefit manager CVS announced Neupogen will be replaced with its biosimilar version, Zarxio. This is a big boost for biosimilars as CVS covers 30% of US lives. CVS commented that they are embracing a future with biosimilars and follow-on biologics.

Analysts estimate that at a minimum, biosimilars have the potential to generate some US$50 billion savings by 2025 for western healthcare budgets. Healthcare spending in the U.S. is so far beyond its developed world peers that steps are taking place to reined it in. The lower price of biosimilars is one way to reduce total healthcare spend. For this reason, governments, regulatory agencies, and pharmacy benefit managers, and consumers will continue to be supportive of biosimilar adoption.

Pfizer’s future pathways

One of the big winners will be U.S. based pharma giant Pfizer. Pfizer is a leading research-based pharmaceutical company that focuses on drug discovery for human diseases. The company has key franchises in cardiovascular, infectious diseases, inflammatory conditions and vaccines. In 2015, Pfizer generated approximately US$48.8Bn in biopharmaceutical sales. Pfizer is best known for two stand-out products – Viagra the famous erectile disfunction drug and Lipitor which is used to lower LDL cholesterol. I have been in and out of Pfizer’s shares since the late 1980s.

Pfizer is one of the clear beneficiaries of the biosimilar approval due to a recent acquisition of U.S. based Hospira (HSP) – a leader in generic and biosimilar medicines, propitiously making the company one of the top three global players in biosimilars.

Hospira's product line has two high growth areas:

  1. Biosimilars— Hospira is on track to gain approval for the next two biosimilar compounds to be approved in 2016.
  2. Sterile injectables – which will have an addressable market of in aggregate, of some USD$70 billion globally by 2020.

Expanding into the biosimilar market is strategically necessary for Pfizer, as some of their most profitable pharmaceutical products have lost or are scheduled to lose their intellectual property protection and are being replaced by generics. Biosimilars are more of a medium to long term story for Pfizer and the other biosimilar players about to enter the U.S. biologics market. It will take time for biosimilar “sponsors” to clear both regulatory hurdles and negotiate, and perhaps litigate, with the innovators of the original indication.

However “the genie is out of the bottle” and regulatory and intellectual property hurdles are no longer insurmountable since the FDA is now willing to accept EU and external bridging trials and there is now an acceptable regulatory pathway for biosimilars in the U.S. 
It is the intellectual property hurdle that is the most time consuming and complicated. The Biologics and Price Competition and Innovation Act of 2009 (BPCIA) provides an abbreviated pathway for biologics to enter the market and negotiate with innovators but in many cases this will give rise to further litigation. It is hoped that the FDA approval of Zarxio will clear up many ambiguities.

That being said, I am also more positive toward Pfizer than I have been for some time because of a large and reinvigorated pipeline.

Pipeline summary

Pfizer is making big advances in its pipeline having gained accelerated FDA approval for Ibrance – a metastatic breast cancer drug. Ibrance could be a US$5 billion drug and has a significant lead over Novartis’ ($NVS) drug LEE011 and Eli Lillys’ ($LLY) drug abemaciclib by at least 2 years. Pfizer has priced Ibrance at US$118,000 per year for an end user and will benefit from a very large patient population. In its August quarterly earnings report, Pfizer said Ibrance generated revenues of US$514 million in just three months.

  • Pfizer also has a growing immune-oncology (IO) portfolio, an area that theoretically has huge potential, with 5 IO drugs in the clinic by 3Q’15 including a viral vector DNA vaccine for prostate cancer.
  • Also promising is PFE’s CCR2 inhibitor (‘309) which has shown a 48% response rate in Stage III pancreatic cancer, a disease that is invariably a death sentence.
  • Over the next four years, Pfizer has over 20 drugs that are in later stages of development. The company now has about 90 drugs in its pipeline, and more than 60% are in Phase II or III trials. Key areas include cancer, neuroscience & pain, and inflammation & immunology, which account for more than two-thirds of these assets.
  • Other pipeline highlights include the filing of new indications for Xalkori (anti-cancer) and Xeljanz ( chronic plaque psoriasis), which could be key growth drivers over the near term.
  • Pfizer is modestly valued and trades at 14.3X 2016 EPS and pays a 3.4% dividend.
  • Earnings are forecast to grow at a 14 % CAGR 2014-2017.
  • This is a high quality, innovative company that has the potential to grow at a much higher rate than seen over the past decade due to the biosimilar opportunity and its promising pipeline. Analysts expect dividends to grow in excess of earnings.


As with any pharmaceutical or biotechnology company, failures of key products to either achieve sales estimates or gain FDA approval are the key risks:

  • CDK4/6 inhibitor Ibrance may not meet sales targets
  • Xeljance sales may be pressured by safety issues or competition
  • Delays in approval for blood thinner Eliquis and competition from Daiichi’s drug edoxaban
  • Poor trial data for potential blockbuster drug Prevanar 13 – prevention of pneumonia in the aged.

Important: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. Consider the appropriateness of the information in regards to your circumstances.

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