Cipla Gears Up for Venture Into Biosimilars Market

Indian generics major Cipla is gearing up to expand its presence in the high-growth biosimilars sector. To this end, Cipla has already invested US$65 million in the acquisition of Indian-based Mab Pharm, and Chinese firm BioMab, as well as investing US$11.19 million in stem-cell research through Indian firm Stempeutics Research. These moves come at a time when patents on some of the major biotech drugs are already recently expired, or expected to within the next few years, meaning that biosimilar competition is set to increase as firms look to gain a share of the US$20-billion market (source: PricewaterhouseCoopers).

The firm will initially concentrate on the oncology and rheumatic segments, with particular focus on Swiss major Roche's breast, colon, kidney, lung, and gall bladder cancer drugs, Herceptin (trastuzumab) and Avastin (bevacizumab), and Merck KGaA (Germany)'s head and neck cancer drug Erbitux (cetuximab). Cipla will be looking to initially market these products in the Indian market, where they are not covered by patents, before expanding into other markets.

There a number of drivers behind Cipla's strategic move:

• Biotechnology drugs, besides insulin, are free from the Indian government's price control act, allowing independent price setting.
• An increase in the number of biotechnology parks in India, some of them publicly funded, have acted as a catalyst for the industry.
• Locally manufactured biosimilars are increasingly accepted by healthcare professionals within the country.
• A clear regulatory pathway is set to be implemented for biosimilars in India, with the formation of a single umbrella organisation, the National Biotechnology Regulatory Authority, likely to be introduced by early 2011, following a winter parliamentary review of the proposed body. Currently, Indian regulators consider biologics on a case-by-case basis and recommend extensive clinical trials only if deemed essential, a process which involves a large number of regulatory bodies. These include: the Institutional Bio Safety Committee, the Review Committee on Genetic Manipulation, the Recombinant DNA Appraisal Committee (RDAC), the Drugs Controller General of India (DCGI), the Central Drug Standards Control Organisation, and the Genetic Engineering Approval Committee (GEAC.)

Challenges Ahead

Cipla is posed to face major challenges, including the following:

• Due to the complexity of manufacturing biologics, regulatory agencies are hesitant in establishing abbreviated approval pathways for biosimilar products, hence making the developmental costs of biosimilar products high. This currently has a positive effect in that it limits competition in the segment. However, as governments and patient action groups continue to lobby for cheaper products, some markets are starting to implement reduced approval processes, such as in South Africa.
• The biosimilar market is and will be characterised by price competition, even with a limited number of players for a given product. This constrains the commercial potential, as small price differentials reduce the incentives to switch from original products.
• Manufacturers of branded products tend to use defensive tactics, by developing complex biopharmaceuticals and second-generation products with more convenient administration schedules and no marked price difference.
• Biosimilars have a significantly lower research and development (R&D) success rate than generics, with higher investments and operating costs, making this new territory for Cipla.
• The supply chain for biosimilars will be different for generics as they are less stable, have a shorter shelf life, and require cold chain distribution, hence requiring Cipla to invest in a new distribution system.
• Reduced substitutability is an issue as physicians must specifically prescribe a biosimilar, and due to slight differences in structure and mechanism of biosimilars, most governments do not encourage direct substitution, unlike with generics.

Competition

Cipla will face competition from already established major Indian biotech firms—Biocon has 10 developmental products—five of which are in oncology—and over 25 products already on the market. Reliance Life Sciences currently markets nine products in India and overseas, with 14 products in the developmental stage. Cipla will also face competition from major generic firms such as Lupin and Dr. Reddy's, which are also preparing their entry into the biosimilars market with oncology products, for example Dr. Reddy's non-Hodgkin's lymphoma drug, Reditux (biosimilar version of rituximab).

According to The Economic Times, India's biotech sector has been growing at over 20% a year, and its current value stands at 25 billion rupees (US$538.4 million).

Outlook and Implications

Cipla's strategic interest in the biotechnology sector comes as no surprise, given that the firm first announced it was making tentative steps into this sector four years ago. Through its acquisition of Mab Pharma and BioMab, Cipla has gained the manufacturing capacity and technical know-how to start its foray into the biosimilar market, and in line with Cipla's strategy of providing biosimilars at a much cheaper price than innovative versions—biosimilars in India are currently priced at 25–50% cheaper than the imported innovator products. This strategy follows its success in bringing down the prices of anti-retrovirals (ARVs) by over 90%, resulting in Cipla becoming a major ARV manufacturer and supplier worldwide. Cipla will need to capitalise on its brand name when it comes to direct marketing to the small numbers of specialists involved in biosimilars, as well as its already established marketing network, to elevate its competitiveness in this segment. The firm could potentially use its existing partnerships with major pharma firms in the Indian market to enhance its competitiveness and effect a market entry into this segment. Agreements for the outsourcing of major pharma's biotech molecules and technology transfer could be used, with the innovative firm benefiting from an increased presence in the Indian market. To ensure success in expansion into other markets, partnerships and alliances would provide Cipla with a better chance for success. The Indian firm will have to adapt to the unclear and ever-evolving regulatory pathways outside India if it is to be successful worldwide. With a strong capital base, good brand, and already extensive market presence on its side, Cipla could potentially break into this market and gain increased revenues in the medium term, with the potential to increase its market share in the longer term.

Related Links

• India - China: 16 June 2010: Cipla Acquires Strategic Stake in Two Biotech Firms
• India: 28 April 2010: Cipla Invests in Stem-Cell Research
• India: 21 February 2006: Cipla Moots Acquisition Plans in Biotech Sector