Importance of Biologic Sales to the Overall Business

The final section of analysis examines whether the proportion of a company‟s overall business derived from a single biologic product has any impact on the strategies the company in response to potential biosimilar competition. This relationship is not explicitly established in the hypothesis development section of this study; however, revenue generated by a single product is an important internal factor that also drives company‟s strategic decisions.⁸⁵ It is also of interest to examine any interaction between the sales at risk and the remaining patent life for a more complete measure of the

company‟s risk from future competition. Further empirical research of the biologics / biosimilars market must take into account company internal factors such as individual product sales when attempting to model corporate strategy decisions.

The figure below plots the combination of corporate strategies (out of four) adopted the company by the year of patent expiration of the case biologic product (x-axis) and the percent of company total sales generated by the biologic (y-(x-axis). The lowest percentage - 3.6% - are the sales from Lucentis for Roche, while the highest -

57

56.7% - are Humira sales for Abbvie. The earliest patent expiration year was in 2013 (for Rituxan/MabThera in EU and Japan) while the latest is in 2020 (for Avastin in Japan).

Figure 5.5: Incumbent Strategy Combinations - Plotted Over Patent Expiry Year and Sales for the Biologic as Percent of Total Company Sales

Companies with higher proportions of sales from the single biologic product appear to have adopted more of the strategies identified as responses to biosimilar competition. At below the 9% sales figure, five out of six cases adopted only one

strategy; four of those five adopted the strategy of developing new biologics. Above 9%, one out of eight cases adopted only one strategy for responding to biosimilar

competition; the remaining seven have two or three strategies. There does not appear to

58

be a clear relationship between the patent expiration date, company sales at risk, and number of strategies adopted. Biologics with patent expiration dates between 2013 and 2016 had cases with lower sales at risk (less than 9%) and single strategies, as well as cases with higher sales at risk (at least 15%) and three competitive strategies.

The specific case which appears to indicate a company taking serious measures to protect revenue when faced with large share of sales at risk and a patent that has already expired is Roche adopting three of four competitive strategies for MabThera in Europe. In contrast, Roche has only adopted one strategy for Lucentis, which makes up a lower share of total sales and has patent protection until 2019.

The measure for sales of a biologic as a percent of total company sales may not be a stable measure for a company‟s internal risk due to reliance on sales of a single product. A company‟s reliance on single product can change based on selling the marketing rights to another company, or acquiring marketing rights of other products from other companies. As the case with Abbvie, the entire business units can be spun-off into a different company, or similarly acquired by other companies.

5.5 Discussion

This section examined the corporate strategies developed by incumbent biologic manufacturers in response to future biosimilar competition. Strategies that could be attributed directly to potential biosimilar competition against a company‟s biologic product were identified as: (i) legal defense of patent rights; (ii) seeking new indications for use of the original biologic; (iii) develop a new biologic to „cannibalise‟ sales of the original biologic; (iv) planned launch of biosimilars.

Strategies vary based on the potential for competition in the market; length of patent protection, and the importance of individual product to the company‟s overall

59

business. Examining company disclosures for six high sales volume biologics, all with patents expiring by 2020 (Avastin, Enbrel, Humira, Lucentis, Remicade, and Rituxan), the study finds some evidence that strategies to respond to biosimilar competition have been developed in context of the markets in which the biologic is sold (US, EU, or Japan). Biologics marketed for the US were more likely to have defensive patent infringement suits or patent extensions. In Japan, the market determined to have the lowest degree of biosimilar competition, the incumbent biologic manufacturers were more likely to apply for additional indications, which can be revenue increasing only without biosimilar competition. The EU, which is the more mature system in terms of regulation and reimbursement policies for dealing with biosimilars, had the same number of instances of adding new indications and the highest number of cases of new biologics in development.

The timing of patent expiration may have an influence on the type of strategy adopted for a biologic incumbent. Cases of incumbent biologics having plans to add new indications under Phase III were more likely with patents of later expiration dates.

This supports the view that adding new indications only has a positive impact on revenue if there is limited biosimilar competition, which can be supported under patent protection. Companies may be more likely to continue with trials for new indications if there is sufficient time under patent protection to complete the trial, submit the

marketing application for regulatory approval, and start sales for the new indication.

Biologics with earlier patent expiration dates had more cases where the new biologic is in a later trial stage (Phase III) or already approved for market. This finding underscores the more immediate necessity to have new biologics ready for market to replace sales at risk from biosimilar competition.

60

The simple, descriptive analysis presented in this section has many limitations.

The sample size of cases is too small to statistically validate any of the hypotheses proposed in this section. The sample is also very selective- the biologics examined are the highest selling biologics, omitting many other biologics available in the market.

These biologics may drive a certain strategic response from the license holder; while other biologics used to treat smaller patient populations may drive different strategies that were not examined in this study.

There may be other factors omitted in this section that also play a role in shaping the incumbent‟s strategy. Strategic interaction between the incumbent and other actors in the market, including future biosimilar competitors, plays a role in developing the incumbent‟s strategic focus. Also the ability for the incumbent firm to shape the regulatory and reimbursement environment through lobbying is not included in the study. Strategies such as mergers and acquisitions and further intercompany licensing agreements are not examined because of the difficulty in attributing them to a single biologic. This information may also not be found in the company annual reports, which this study relies on as its primary source of data.

Despite these limitations, this analysis does present both the key factors in determining the incumbent strategy, and the main types of strategies the incumbent will adopt. This can serve as an initial guide on the type of information that will be critical for any potential biosimilar entrants to collect to understand the competition they will face from the incumbent.

61