On Thursday, the U.S. Food and Drug Administration approved Amgen Inc. (NASDAQ: AMGN) and Allergan PLC's (NYSE: AGN) Mvasi, the first biosimilar to a cancer drug to win the regulatory green light. The FDA's decision will create competition for Roche Holdings' (NASDAQOTH: RHHBY) multibillion-dollar cancer drug Avastin, and perhaps help get cancer-drug prices back under control.
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Billions of dollars at stake
According to recent research published in JAMA Internal Medicine, it costs $757 million to develop a new cancer drug, and those sky-high development costs are a big reason why complex biologics like Avastin are incredibly expensive. A 16-milliliter vial of Avastin can cost $2,854, according to the U.S. government's Federal Supply Schedule.
Avastin helps prevent the formation of new blood vessels necessary for the maintenance and growth of solid tumors, and it's approved to treat a range of solid-tumor cancers, including lung cancer, colorectal cancer, kidney cancer, and others. Despite its having been on the market since 2004, it remains widely used by oncologists, and as a result, it's one of the planet's top-selling medicines, with nearly $7 billion in annual sales.
A new competitor (eventually)
Generic drugs have been winning market share away from brand-name, small-molecule drugs since the 1990s, but until recently, biologic drugs were too complex to create cheaper alternatives that could pass muster with the FDA. Because biologics are created in living cells, it's nearly impossible to copy them identically; absent a path to winning an FDA OK for an inexact copycat, research into biosimilars was limited.
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Over the past few years, however, biosimilar research has skyrocketed thanks to the passage of Obamacare, which included a road map for biosimilars to become FDA-approved. Today, many of the world's biggest drugmakers are researching biosimilars, and the approval of Mvasi is a testament to their success.
Mvasi's approval is a victory with big implications for cancer-drug prices, but it will be a while before we know exactly how much it will cost. Avastin still has patent protection in the U.S. until 2019, so we have some waiting to do before Mvasi is available.
What's the takeaway?
Investors will want to keep a close eye on biosimilar-drug developers. Generic small-molecule drugs represent roughly 90% of all prescriptions written, and makers of generic drugs rack up tens of billions of dollars per year in revenue.
Because of their complexity, biosimilars won't be sold at as deep of a discount as generics, but biosimilars that have won approval in other indications have launched at discounts as high as 40%. If lower prices allow biosimilars to win away even 10% of the market, the impact would be significant.
Avastin alone could bring hundreds of millions of dollars in sales to Amgen and Allergan, and the savings to insurers could be even bigger, especially if Roche price-matches in a bid to maintain Avastin's market share. Since global oncology spending already exceeds $100 billion, even a single-digit percentage of savings due to biosimilars will translate into billions of dollars.
As for biosimilar-drug makers to have on your radar, Amgen and Allergan should certainly be on the list, given that they're collaborating on four oncology biosimilars (including Mvasi). You'll also want to watch Biogen, Pfizer, Mylan, and Novartis because they're all investing in biosimilar pipelines that include cancer drugs. Overall, it's admittedly too soon to know which company will come out on top in oncology, so investors should have all of these companies on their watch list.
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