Pfizer-Allergan deal could reduce biosimilar cost savings

Pfizer's $160 billion deal to acquire Irish drugmaker Allergan got a lot of attention for the tax advantages Pfizer would enjoy from moving its New Jersey headquarters overseas to Dublin.

There wasn't much talk, though, about how much the deal would expand Pfizer's footprint in biosimilars, a burgeoning business in which the company has already made significant inroads with its $15 billion acquisition of Hospira in September.

As the field of competitors begins to narrow, a handful of companies will gain significant leverage to set higher prices on biosimilars, medicines that some experts say could help save more than $40 billion in drug costs over the next decade as the cheaper alternative to biologics.

Pfizer itself has at least five products in Phase 3 clinical trials. They include versions of AbbVie's blockbuster Humira, Johnson & Johnson's Remicade, and Genentech's big sellers Avastin, Herceptin and Rituxan. Hospira had been developing versions of those same drugs as part of a collaborative agreement with Celltrion, causing Pfizer to divest some of those products to avoid an antitrust challenge from the Federal Trade Commission.

Still, the company gained a number of other biosimilars by acquiring Hospira, including versions of Amgen's cancer drugs Epogen and Neupogen, as well as Genentech's injectable diabetes medication Lucentis.

Allergan, meanwhile, is collaborating with Amgen to develop four oncology biosimilars, including versions of Avastin, Herceptin and Rituxan.

An Amgen spokeswoman said the agreement with Allergan provides “protections” that would allow Amgen to retain the rights to those products. But the Pfizer-Allergan deal is likely to alter the timing of the projects, according to Tim Gamble, an analyst at Datamonitor Healthcare, a pharmaceutical industry research firm.

“Pfizer is currently competing with Amgen to lead the biosimilars category, and Allergan is in partnership with Amgen to develop several biosimilar oncological products,” Gamble said. “By targeting Amgen's partner for acquisition, Pfizer would disrupt their pre-launch commercial activities.”

The moves are allowing Pfizer to roll up a significant share of a market that some analysts estimate will be worth more than $20 billion by 2020.

Pfizer's acquisitions reflect a broader uptick in mergers and acquisitions among pharmaceutical companies. The value of transactions in the sector reached $221 billion in the first half of 2015, which was triple the tally for the same period in 2014, according to a July report by research and consulting firm KPMG.

The pace of pharmaceutical deals is likely to continue because larger companies are looking to offset expected declines in revenue as patent protections expire on some of their biggest-selling drugs.

Some view the pursuit of promising biosimilar pipelines through M&A as a smart way for big drugmakers to finance the resource-intensive development of their own specialty medicines. Others see the strategy as primarily aimed at heading off competition.

“It is a sign of a lot of flux within the biosimilar market right now,” said Andrew Mulcahy, a policy researcher for RAND Corp. “Everyone and their brother got into biosimilars a few years ago, and there's now some shaking out of the market.”

The trend toward consolidation could repeat what happened among the developers of biologic medicines. Companies like Amgen and Genentech have dominated that market for years with products that are among the most expensive prescription drugs. “Fewer players mean less in terms of price reduction,” Mulcahy said.

But he added that the current number of players in the market is still robust. Several of them plan to introduce an array of copycat biologics over the next several years.

“We really would be concerned if we were going from three to two, or two to one for sure,” Mulcahy said. “But going from five to four or six to five competitors is much less of a concern.”

But the consolidation may dampen already diminishing hopes that biosimilars will be a significant source of cost savings for consumers and payers.

September's introduction of the first biosimilar in the U.S. was widely seen as the beginning of a new era of price competition that would yield the kind of savings generated by generic alternatives to brand-name small molecule drugs over the past three decades.

But that first drug—a biosimilar version of Amgen's Neupogen made by Novartis subsidiary Sandoz—was priced just 15% lower than the original cancer drug.