Health

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.

Well, that was a short honeymoon. 

Back in November, when Pfizer Inc. launched its biosimilar -- a generic version of a drug made with living cells -- of Johnson & Johnson's blockbuster inflammation drug Remicade, it priced the copy at just a 15 percent discount to the original's list price. That disappointed anyone hoping biosimilars would bring a golden age of cheaper drugs. But it was also relatively friendly, as far as legally risky launches of copycat versions of flagship products go. It left J&J not having to fear losing too much in the way of sales, while giving Pfizer a healthy margin on its own sales.

But then Merck & Co. and Samsung Bioepis had to ruin the party on Monday, by launching a competing biosimilar -- developed by the Samsung biotech unit and marketed by Merck in the U.S. -- at a 35 percent discount to Remicade's list price. 

Price Cut
Johnson & Johnson shares dropped slightly on the news of the launch of a sharply discounted knockoff of its best-selling medicine -- but it shouldn't be the only firm that's worried
Source: Bloomberg
Intraday times are displayed in ET.

This has effects beyond Remicade and its imitators. The biosimilar market is developing just as Allergan PLC CEO Brent Saunders predicted: As more versions of drugs hit the market, prices will rapidly drop, eating away at the profits of everybody involved.

Pfizer will likely be forced to match Merck and Samsung price cut. And then J&J will have a harder time getting people to pick its more-expensive original, which is expected to be J&J's largest medicine through 2019.

The Price That Was Promised
Successive knockoffs of J&J's Remicade are getting ever-cheaper
Source: Bloomberg

Just look at what happened to Merck, which has a license to sell branded Remicade in Europe . Since biosimilars first hit the market there about three years ago, Remicade sales are down more than 60 percent from their peak. 

Analysts expect J&J's sales to decline at a slower rate than that -- about 32 percent from 2016 to 2019 -- but they may be too optimistic. Yes, there are still some regulatory barriers to broad biosimilar uptake in the U.S. Then again, Remicade didn't face two biosimilar launches in Europe in such a short time period. And insurers eager to cut costs, along with Merck and Samsung's massive biosimilar price cut, should smooth patient uptake of Remicade competitors.

The Downslope
Analysts expect biosimilar competition to affect J&J more slowly (on a percentage basis) in the U.S. than it has Merck in Europe
Source: Bloomberg

Along with other firms that make competing inflammation drugs -- such as Amgen Inc.'s Enbrel and AbbVie Inc.'s Humira -- biosimilar manufacturers should be feeling antsy, too.

Firms that make biosimilars like these drugs because they have high margins and pricing relative to traditional generics. But they are also more expensive to develop and bring to market.

Merck and Samsung are setting a scary precedent by more than doubling Pfizer's discount in the lucrative U.S. market despite being only the second biosimilar to arrive there. That discount comes before large insurers and pharmacy benefit managers have started negotiating their own price breaks -- the total cut may be even larger. 

Meanwhile, a huge crop of biosimilars is on the way for a variety of drugs, threatening an even bigger race to the pricing bottom. Want a scary precedent for the industry? Look to Norway, where a Remicade biosimilar is available at a nearly 70 percent discount to the original.

The Storm
A wave of generic competitors is set to hit sales of some of the world's most lucrative drugs
Source: Bloomberg Intelligence

Pfizer's brief period of having the only U.S.-approved Remicade biosimilar will likely be the norm in the future, as the FDA gets quicker about approving biosimilars. The agency is gaining experience in evaluating them, and new chairman Scott Gottlieb has made bringing more competition to expensive medicines a priority. Biosimilars are a logical place to start.

Eventually there may not even be a short honeymoon period of modest discounts for new biosimilars before cutthroat competition starts. This is likely not what firms anticipated when they committed years and big budgets to breaking into this market.

The big positive of all this, of course, is that lower prices mean many more patients will get access to these medicines. But the biosimilar pie may be smaller and split more ways than some drugmakers expected. 

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

  1. Schering-Plough partnered with J&J on Remicade, and was acquired by Merck in 2009. Merck still has a license and sells Remicade in Europe, Russia, and Turkey. It splits the resulting profits with J&J. 

To contact the author of this story:
Max Nisen in New York at mnisen@bloomberg.net

To contact the editor responsible for this story:
Mark Gongloff at mgongloff1@bloomberg.net