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Biosimilars as Generics and... The Future of Medicine?
Perhaps mentioning the future of medicine and generics in the same breath is somewhat oxymoronic. But not every path to the future is new.  With some blockbuster antibody based drugs already heading to the finish line in terms of patent expiration, the door opens for biosimilar equivalents.  But producing these drugs is no easy feat and only the biggest generic players (or most ingenious copycat) will be able to pull it off.   
Already the undisputed leader in generics for small molecule drugs, Teva stands to benefit enormously as biosimilars begin to gain momentum. Laws passed in recent years have paved the way for the approval of follow-on versions of biologic medicines. The EU is leading the way with 13 biosimilars approved compared to just one in the US through their respective approval processes. While these rules only applied to simpler protein therapeutics for now, the EU is set to release a new set of requirements for the development of follow-on antibodies.
The requirements are expected to be fairly strict, requiring clinical trials for every drug. The question to be answered is how extensive those trials will need to be. Teva has already planned for the worst case scenario; it has initiated full head-to-head trials of its version of Rituxan, TL011, against the original in both non-Hodgkin's lymphoma and rheumatoid arthritis.
Teva has partnered with the world's largest API manufacturer, Lonza, to share in the risks of this venture- a necessary move considering the cost of each indication may be over $100 million. The reward is certainly enticing- worldwide Rituxan sales were close to $6 billion in 2009 across multiple indications including cancer and rheumatoid arthritis. Rituxan loses patent protection in the EU in 2014, and in the US, between 2015 and 2018. An approved copy of Rituxan would be the first follow-on antibody.
The risk and expense of developing biosimilar antibodies creates a high barrier to entry- few generics companies have the resources to conduct the full-scale clinical trials likely required for approval. This certainly works out well for the big players. A smaller field means less competition and higher profits for an extended period of time. Teva is among the few generics companies able to compete in this lucrative business. Rivals include Sandoz and Hospira on the generics side, Merck and Pfizer on the Pharma side.
This is a huge departure from the historical generics landscape, with dozens of drug makers, large and small competing for each drug as it goes off patent, each working independently. When a typical small molecule drug loses patent protection, the first generics company makes substantial profits during its first six months of exclusivity. But soon after, competition from fellow generics drug makers drives down prices and profits.

There is one company that breaks the mold in the biosimilar field and that's Momenta. With a market cap of only $752 million, it is tiny compared to the competition. But through unmatched science and know-how, the company has successfully obtained approval for enoxaparin, brand name Lovenox. This was accomplished with backing from Sandoz.  
In 2009, the sale of all biologics reached $130 billion, with $35 billion of that attributed to antibodies; antibodies are the fastest growing therapeutic segment. It is estimated that between 2008 and 2014, $60 billion worth of biologics will lose patent protection. Teva already has a biosimilar to G-CSF approved in the EU and is hoping for approval for its copy of enoxaparin in the US, however, both products had abbreviated approval processes. G-CSF was among the first set of biologics the EU built its approval process around, and generic enoxaparin did not require any clinical testing.     
Biosimilar antibodies should be a boon for the large generics companies. The upfront costs may be high, but downstream gains will make biosimilars well worth the investment. Regulators, in an attempt to bring down drug costs by providing safe and efficacious follow-on biologics, will create another windfall opportunity for generics companies.
The Big Generic and the Ingenious Copycat
Teva should be a key beneficiary but we also like the approach of Momenta which is a more speculative but ingenious copycat.  Momenta basically can reverse engineer its way to a generic biologic but it might need help from the FDA to make this approach a winner.
Momenta lost its sole player status in the Lovenox market (a big reason we didn't step in before with this pick) and is in the initial stages of defending it.  The company secured an injunction against the competing product in late October.  The injunction was granted based on the reasonable likelihood that Momenta is likely to win a patent lawsuit and will suffer irreparable harm.  It's difficult to get such an injunction and it speaks to the merits of the company's position.
The wild action (drop on late September entry of the competitor and rise on the late October injunction) is easily seen in the chart.

We view the pullback in shares of Momenta as providing an attractive entry to the company despite the Lovenox battle because the technology which created their generic Lovenox is already proven and taking aim at other drugs with partnering in development.  More importantly and to the point, it is taking aim at biologics.  The real wildcard for Momenta becomes the ultimate position of FDA on requiring full clinical trials for biologic equivalents. 
We believe the FDA will back away from this full clinical trial rigor as is even suggested in the article Developing the Nation's Biosimilar Program recently appearing in the New England Journal of Medicine.  This article must be music to the ears of Momenta and potential partners of Momenta.  Though it does not reflect an official FDA position, the source of the article speaks somewhat clearly in our view (i.e. U.S. Food and Drug Administration Center for Drug Evaluationand Research (S.K., J.W., R.B.S) and Center for Biologics Evaluation and Research (K.M.), Silver Spring, MD.) It's well worth a read for anyone considering Momenta.  If the FDA indeed ultimately backs away from full clinical trials for biosimilars as we expect and these FDA authors indeed suggest, Momenta becomes a key enabler of "biologic copying" for an eager segment of the biosimilar generics industry.
Thus, in total, Momenta reflects a risk/reward play that we view as a risk worth taking.  It's reverse engineering of biologics in an ingenious approach that seemingly has favor at FDA (as they are specifically cited in the NEJM article) and could indeed be the most profitable and lowest cost path to getting generic biologics to the marketplace.  In hindsight generics and the future of medicine is not such an oxymoron after all.