Max Nisen is a Bloomberg Gadfly columnist covering biotech, pharma and health care. He previously wrote about management and corporate strategy for Quartz and Business Insider.

"Biosimilar extrapolation" looks like it might describe an obscure laboratory process, but it's the most ominous sort of jargon for big pharma.

Biosimilars are the equivalent of generics for biologic drugs, which are made with living cells. A host of scientific, legal and regulatory unknowns make them a tough-to-measure threat for companies that have blockbuster biologic drugs on the market. At least one of those mysteries may have just been solved, and not in a way that favors major drugmakers. 

A biosimilar copy of Johnson & Johnson's inflammation blockbuster Remicade got a big thumbs-up on Tuesday from a panel of experts convened by the FDA, making a full approval of the drug seem likely. This decision won't make competition come any sooner; Remicade's U.S. patent doesn't expire until 2018 (though it is being legally challenged). But it does suggest the eventual blow will be harder for both J&J and other branded drugmakers. 

The maker of the copycat drug, South Korea-based Celltrion, is the first to seek approval in the U.S. using an argument, unique to biosimilars, called "extrapolation." That's where you use positive data from a study of a drug's effectiveness in treating one or two diseases to suggest it will work just as well for all of the conditions the original drug treats.

In this case, instead of just treating arthritis and ankylosing spondylitis, Celltrion's drug looks likely to get the go-ahead to treat several, or even all, of the conditions Remicade treats. It would be the first biosimilar to be approved in the U.S. for a number of different diseases at one swoop, sparing the need for expensive clinical trials for every use.

Asked if they thought Celltrion's drug should be approved in all seven of the conditions Remicade is licensed to treat, 21 panel members votes yes, 3 voted no. 

J&J shares are down nearly 2 percent since February 5th, when the FDA first released documents seen as foreshadowing this result. AbbVie -- which is heavily dependent on an expansively approved inflammation drug called Humira that will face biosimilar competition -- was down nearly 6 percent in that time. Humira already competes with Remicade for patients, and a cheaper version would be bad news for its sales prospects. 

Drug Bust
J&J has tumbled on fears the FDA will approve a copy of its Remicade drug to treat multiple diseases.
Intraday times are displayed in ET.

The panel's decision isn't binding. But the FDA, which is expected to make an approval decision sometime this quarter, usually follows the recommendation of these committees.

A wide-use approval would be a jolt to J&J and the industry at large. Remicade is J&J's top seller -- reaching $6.5 billion in sales last year -- and is one of the best-selling drugs in the world. Celltrion's drug would be the first biosimilar approved that is a monoclonal antibody, a complicated and widely used type of biologic drug. The panel's vote could be a bad sign for future sales of other branded drugs of the type, including Humira.

If this panel's pro-extrapolation bent is a bellwether, and there are many broad biosimilar approvals in the future, then it will be easier for these sorts of drugs to rapidly eat into the sales of the products they imitate. 

This is only the second biosimilar candidate to even make it in front of an FDA panel. Novartis' Zarxio biosimilar for Amgen's Neupogen was approved last year, but it only treats one illness. 

Analysts now need to bake in the likelihood that biosimilars will hit drugs that treat multiple diseases all at once in the U.S. Extrapolation has already been used effectively in Europe, where Celltrion's drug is already on the market and cutting into J&J sales. 

Bunny Hill
Johnson & Johnson's Remicade may be harder hit by biosimilars than analysts expect.
Source: Bloomberg

It's not all bad news for big pharma. Novartis is big into biosimilars via its Sandoz unit. Pfizer is a partner in Celltrion's Remicade biosimilar through its acquisition of Hospira, and has more such drugs on the way. On Johnson & Johnson's latest earnings call, CEO Alex Gorsky said he thought only 30 percent of Remicade patients were even candidates to switch to an alternative, given satisfaction rates and doctors' general hesitancy to switch from a drug that's working.  But many of the industry's best-selling drugs are threatened. 

There's a chance that other medicines will be different, that the FDA will find differences that limit extrapolation. Canada, for example, didn't approve Celltrion's Remicade biosimilar for all uses. And this was a particularly detailed and data rich presentation, according to the panel, which sets a high bar. But because the biosimilar regulatory pathway is so new, every decision sets a precedent.

This one is firmly in favor of biosimilar makers. 

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

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