When President Obama's healthcare reform bill passed in
late March 2010, name- brand pharmaceutical companies
immediately scrambled. The timing could not have been
worse. Most branded pharmaceutical companies were already
nervous about the lack of branded drugs in the pipeline.
They
were all privy to the fact that during 2011 and 2012
several best-selling, brand name drugs were losing their
patent protection. They knew several of the industry's
cash cows, including Lipitor, Plavix and Seroquel were
coming off patents over the next two years.
So,
the announcement of an upcoming healthcare reform coupled
with a loss of patents led to the inevitable - a sharp
increase in the price of brand name drugs.
Brand
pharmaceutical companies know that the upcoming healthcare reform
will severely eat away at their profits - so they are trying to get
as much profit out of their current pipeline as possible. Blue
Shield of California Vice President Nancy Stalker agrees,
"...because of the increased number of drugs going generic, they
profit more from the brand drugs on the market by increasing
prices.'
Generic drugs already make
up 70 percent of prescriptions in the U.S., but that percentage will ultimately
increase when healthcare reform begins to roll out. The government will place
significant cost pressures on pharmaceutical companies to keep prices low. Lower
priced generics mean lower cost to government programs, private insurance
companies and most importantly, the patients.
There is no doubt that
generic drugmakers will thrive in the upcoming cost-driven environment.
But there is one area of
generics that will thrive more than any other - biosimilars.
Biosimilars are the generic
equivalent of brand-name biologics. Biologics are brand name products
created by biologic processes, rather than being chemically synthesized.
Biologics are used heavily in the treatment for various cancers, rheumatoid
arthritis and adverse cardiovascular conditions.
For the first time in
history, Congress has passed legislation through the new healthcare reform, more
specifically the
Patient and Protection and Affordable Care Act that will allow generic drug
companies to work towards creating an equivalent to its branded biologic.
Prior to the healthcare
reform, branded biologics, manufactured by the likes of Amgen AMGN,
etc. had 20 year, data exclusivity patent protection.
Now, under the new
legislation, brand name products will only have 12 years of data exclusivity -
this will certainly speed up the approval process of creating biosimilars.
The new law will bring
in more competition as well and most importantly, create a new multibillion
market. There are very few players in the biosimilar arena. And, biologics
and their biosimilars offer some of the highest product margins.
But there are a few
well-established small cap generic drugmakers that will have an overwhelming
advantage in this new market.
These are companies that
could be big winners in the biosimilar space going forward.
Before I get to specific
names I want to delve further into the financials of biosimilars and show you
how big the potential is for the future of this brand new market in the United
States.
My space is limited, and
with so much more to discuss I will save it for Friday's edition of Small Cap
Investor Daily. Believe me, this is one that you will not want to miss.
Stay tuned!
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