Biosimilars Market is Fertile Ground for Impact Investors

Elon Musk’s somewhat hostile bid for the social media platform giant Twitter is a prime example of an intriguing yet rare breed of venture capitalist, the “activist” investor. Carl Icahn is perhaps the most notorious of this venture capital (VC) sub-type; he was known as a “corporate raider” in the 1980s and his approach of buying major stakes in big companies to force change is legendary.

Being an activist investor in the Musk or Icahn vein is typically a profit-first choice. Venture capitalists, activist investors, and major investment funds’ primary objectives are finding value and earning massive returns. Critical infrastructure, education or public health might benefit from activist and traditional investment strategies, but these benefits are usually an ancillary byproduct, not a co-equal objective with profit.

A newer breed of investor has, in recent years, stepped in to fill this void: Impact Investors. 

An impact investor can be an individual or investment fund that has co-equal primary goals: to make money and foment positive social change that can last. In some ways, impact investors are “social VCs”—they fund projects and companies that can create positive, measurable impact for the greater good of humanity. Unlike traditional VC investment strategies that tend to take a high risk, high reward approach, impact investing generally focuses on lower risk, more modest or conservative financial investments that yield the most possible good for people and communities.

In October 2021, UBS Global Wealth Management announced that its clients had invested $650M in MPM Capital’s impact investment fund focused on investing in companies developing innovative treatments for cancer and other indications. MPM’s Oncology Investment Fund 2 is currently the single largest impact-focused fund in the history of biotech at $850M. 

Another great example of increasing impact investing is the American Cancer Societies (ACS) BridgeEdge fund, an impact investing organization launched in 2018 with a $25M ACS investment. According to a recent story penned by the North Carolina Biotechnology Center, BridgeEdge has already invested $75M in 17 impact-focused companies.

Impact investing has come out of the shadows in the last few years and the frequency and amount of funding with a social benefit focus is on the rise. 

This rise in impact investing has dovetailed but is not directly related with the introduction and slow ascension of biosimilars or follow on drugs as quality, affordable alternatives to expensive, name brand therapeutics. 

Why Impact Investment and Biosimilars are a Perfect Match  

The life sciences, generally speaking, is a great target for impact investors as funding new, novel medicines can deliver strong investment returns and public health benefits. Funding novel, first-in-class drugs and therapeutics are still high-risk, high-reward (both financial and societal benefit) investments so the payoff typically has a long, uncertain time horizon.  

There is a drug class within the life sciences that might be an even better fit for impact investors, however, one that has the potential to completely reshape healthcare by delivering more effective treatments, faster, and with less cost to patients.

“The biosimilars or follow-on drug sector within the biotech market is a place where impact investors can potentially make a huge difference in people’s lives. Biosimilars are ideal, lower risk investments for impact investors that can yield strong financial returns and revolutionize the healthcare industry for the better,” stated Dr. Darryl Sampey, the CEO of BioFactura, a leading biosimilars and biodefense company located in the Frederick, Maryland biohub.

“We’re seeing a lot of interest in what we do from impact investment groups, particularly in Europe, where the market is more accepting of competition and biosimilars have been around a bit longer. An increase in impact-focused, social VC funding in biosimilar development, particularly in the U.S., could help so many people suffering from illness live better lives,” added Dr. Jeffrey Hausfeld, BioFactura’s Chief Medical Officer and Chairman of the Board.

Impact investing and the biosimilars market seem like a perfect union that can yield solid returns while delivering deep and meaningful improvements to public health and quality of life.   

Impact: Biosimilars Can Reduce Drug Costs

A seemingly intractable healthcare problem is the high cost that patients pay for life-changing and at times life-saving name brand drugs. 

Some currently available name brand, patent-protected cell and gene therapies cost hundreds of thousands of dollars per dose, for example. Gene and cell therapy doses can range from the hundreds of thousands to several million dollars. Novel, first-in-class biologics, which biosimilars companies would seek to follow to market once a patent expires, also have very high price tags. The generally high costs of name brand or reference drugs is in part due to the complex nature of developing and commercializing novel medicines—bringing a drug from concept to market can cost billions and take up to a decade of complex work and serious financial investment. 

These high costs then get passed on to patients.

Alexander Hardy, the CEO of industry giant Genentech, recently commented on this pricing problem, stating “The status quo is not working. We urgently need reforms that lower costs for patients, while preserving the innovation they depend upon. We believe responsible pricing actions, innovative new payment models and new market competition mechanisms are critical components of a sustainable solution.” (April 15, 2022, “The Science of Pricing,” gene.com)

Part of the solution are biosimilars or follow-on drugs, which create competition with novel, name brand drugs once these reference drugs lose patent protection. Increased competition works to drive down drug prices.

Biosimilars are cheaper to develop and are faster to market than novel therapeutics while delivering similar benefits. In some cases, biosimilars can get to market in half the time than a novel drug and the development costs range between $60-$80M compared to 1B or more for novel products. In addition, biosimilars only require Phase 1 and 3 trials with a vastly reduced trial size requirement of hundreds compared to thousands for a novel therapeutic. 

The more efficient nature of biosimilar development, clinical trials, and commercialization when compared to novel products enables cost savings to be passed on to patients, creating an effective, safe and more affordable alternative to name brand drugs.

In short, as more biosimilars are approved, more competition is created for brand name drugs;  this puts downward pressure on drug pricing while simultaneously increasing patient access to more options at cheaper prices. Increased competition, access and affordability will help combat rising healthcare costs, improve overall public health and upgrade patients’ quality of life from both a health and financial perspective. 

In September 2021, the Association for Accessible Medicines (AAM) released their research findings from its 2021 U.S. Generic and Biosimilar Medicines Savings Report. They estimated that the U.S. healthcare system alone saved $338B through the use of generics and biosimilars. What’s more, the AJMC Center for Biosimilars cited estimates that “…biosimilars would lead to a $44 billion reduction in direct spending on biologic drugs from 2014 through 2024, or about 4% of total biologic spending over the same period…” 

These cost savings generated by stronger biosimilars uptake is remarkable given that this drug class is still in its infancy in the U.S. and faces resistance from Big Pharma across multiple fronts, including insurance coverage and sometimes spurious patent litigation.

If the biosimilars market can increase its market share despite resistance, it clearly has tremendous potential for social impact and strong investment upside, making it a perfect match for impact investors seeking to marry positive social change with lower risk, solid upside investments.

Impact: Impact Investors Can Deaden Market Headwinds

There remain gale force headwinds stalling greater biosimilars uptake by the market, as we’ve written about in a prior BioBuzz feature story. 

These headwinds have temporarily stunted the biosimilars market from reaching its full potential in the short term. These challenges from big pharma companies seeking to protect profits has created a drag on biosimilars uptake but it also has created investment opportunities where the impact investment community can push back on the status quo that’s holding patients hostage to high brand name drug prices.

Reference drug sponsors have attempted to suppress biosimilar uptake in order to protect market share and revenue streams. This is perhaps the strongest headwind facing greater adoption of follow-on drugs in the U.S. marketplace. What’s more, reference drug sponsors have actively discouraged insurance companies from covering biosimilars via various incentives and complex formulary rules around what drugs will be reimbursed by payers. Both spurious patent litigation and insurance coverage manipulation have contributed to suppressing biosimilar uptake and are part of a matrix of resistance from big brand drug sponsors seeking to keep prices elevated and profits strong. 

Impact investors can have a profound, paradigm-shifting influence on the healthcare system and patients by funding consistent and irreversible progress in biosimilars market share and physician, pharmacy and patient uptake.  

By using funding and a mission-driven investment philosophy, impact investors can spark needed change and make an enormous positive impact on people’s quality of life. Investing in companies developing biosimilar drugs can not only help drug development efforts, but it will also give these companies desperately needed runway to fight off legal challenges and an insurance system manipulated to protect name brand drug market share and profits. 

Impact Investors: Repeatable, Solid Financial Returns Keep Change Coming

Biosimilars or follow-on drugs will never be blockbusters by their very nature. These drugs come after a blockbuster or highly successful drug product loses its patent protection. Biosimilars are also more complex and expensive to develop and manufacture than small molecule generic drugs. However, when compared to the cost, complexity, long lead time and high-risk investment profile of novel, first-in-class drugs, biosimilars are an attractive lower-risk option for impact investors seeking great social upside with a solid, more predictable financial performance. 

Recent reports and data show that biosimilars uptake and market share capture is increasing despite the challenges biosimilars face. 

The biosimilars market is projected to be $35.7B by 2025. For U.S. biosimilars already on the market, data show that biosimilar market share jumped from 20% to 25% in the first year of launch to 75% in just 5 years. 2020 also saw a 65% jump in the number of U.S.-approved biosimilars and a 157% increase in available biosimilars and 65% of physicians also indicated they are prepared to prescribe biosimilars if it results in a meaningful cost difference for patients.

Novel drugs are typically granted 20 years of patent protection from generic or biosimilars competition. Scores of name brand drugs and therapeutics are facing “patent cliffs” across the next decade, creating a remarkable opportunity for biosimilar companies and investors to capture a greater share of the drug market. 

Funding biosimilars makes a lot of sense for impact investors or impact-focused funds seeking to do the most possible societal good, more quickly. 

Because biosimilars tend to have a shorter, more reliable road to commercialization than novel, first-in-class drugs, a relatively smaller investment could potentially yield financial, social and public health benefits in half the time for a fraction of the cost. And because of the lower-risk, higher approval rate nature of biosimilars, the investment process is more reliable and repeatable, particularly if an impact investor links up with a biosimilars company with a proven technology platform. 

Instead of dumping millions into novel drug R&D that could linger in the pipeline for a decade and then fail, impact investors can pump more limited investments into biosimilars platform companies that can move multiple biosimilar products to market in the time it took to see a single, novel therapeutic fail or succeed. 

This potentially repeatable financial and social impact engine could yield two important outcomes for impact investors: reducing investment risk while fueling continued investment in companies and products that generate reliable returns and positive social change.

“With the number of reference drugs coming off patent in the coming years, impact investors can really help move the needle on biosimilars uptake and usher in a new era of more accessible, more affordable medicines that will have a profoundly positive impact on the U.S. healthcare system and public health,” stated Hausfeld.

“This is truly a remarkable opportunity for impact investors to do well and to do so much good,” he added.