Don't Let Biosimilars Hold Off Your Pharma Stock Investments

  • Biosimilars are now being approved for use in the U.S.
  • These drugs are not identical to patented medicines and require clinical trial for approval.
  • As with Hillary Clinton’s Medicare bargaining threats, they are not yet a real threat to investors.

Biosimilars, chemicals manufactured in living cells that mimic the action of patented drugs, are starting to hit the U.S. market and are said to pose a bigger threat to biotech profits than Hillary Clinton.

Clinton, you may remember, sent biotech stocks plunging after suggesting the U.S. should let Medicare negotiate on drug prices. Biosimilars threaten something worse, a marketplace price war.

That’s the theory, but so far (as with Clinton’s plans) that is not the reality. Zarxio, a biosimilar to Neupogen, a white cell booster from Amgen (NASDAQ:AMGN), injected alongside chemotherapy made by Novartis' Sandoz unit, will only carry a 2.4% discount at its U.S. launch. The drug is already for sale in over 40 countries.

Novartis (NYSE:NVS) is also bringing to market a biosimilar to Amgen’s Enbrel, a $9 billion compound used to treat rheumatoid arthritis and psoriasis. Enbrel biosimilars from Merck (NYSE:MRK) and Biogen Inc. (NASDAQ:BIIB) are also in the regulatory pipeline.

Biosimilars were first approved as a class by a 2009 act that also included a “sense of the Congress” move to limit malpractice awards, which has not gotten far in the market either.

Since then companies like Hospira, a unit of Pfizer (NYSE:PFE), Teva Pharmaceutical (NYSE:TEVA), Mylan (NASDAQ:MYL) (which Teva had been trying to buy), Amgen, Allergan (NYSE:AGN), Dr. Reddy's Laboratories (NYSE:RDY), and others have sought entry to the market, but their impact has been limited. Congress had estimated savings of $25-40 billion over a decade from passage of the 2009 act.

That estimate may be high. Biosimilars are not easy to make. They must each be approved separately, through clinical trials, because they are not identical to the drugs they mimic.

They have not even taken-off in Europe, where England’s National Health Service now says they cannot automatically be substituted for more expensive name brands. Napp Pharmaceuticals, a British company, has complained about the low take-up of its biosimilar to Remicade, a Johnson & Johnson (NYSE:JNJ) drug.

Generics, drugs that are identical to patented medicines and come to market after patents expire, are doing a lot more to lower costs than biosimilars ever will, with the expiration of patents on drugs like statins. So far, drug companies have been very successful in competing with them.

The bottom line is this. The biosimilar threat is similar to the threat from Clinton, and no more real. She is not President yet, she does not control Congress yet, and pharma companies have not yet begun to fight her. Biosimilars are not common yet, nor do they have control of the drug business. If you’re holding off on a pharma stock investment because of biosimilars, don’t.

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  • I do not hold any positions in the stocks mentioned in this post and don't intend to initiate a position in the next 72 hours
  • I am not an investment advisor, and my opinion should not be treated as investment advice.
  • I am not being compensated for this post (except possibly by Amigobulls).
  • I do not have any business relationship with the companies mentioned in this post.
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