On Wednesday I wrote an article about biosimilars entitled,
"Overlook this Sector and It Could Cost You."
The article was about biosimilars and how for the first time in
Patient Protection and Affordable Care Act
) the generic alternative to name brand biologics would be
available to patients.
Small cap investors don't want to miss out on the boom in
biosimilars, so today I'll delve into the market research a bit and
suggest two stocks to put on your watch list.
According to research group
, the global market for biosimilars should grow from $243 in 2011
to an astounding $3.7 billion in 2015 - a growth rate of 1,422
percent over just 4 years. And the growth doesn't stop in 2015.
Sandoz, the current leader in biosimilars, expects that the entire
biosimilars market could reach $20 billion by 2020.
That means the market could grow by more than 8,000 percent in ten
years. Now you understand why this is something you want to pay
As I stated on Wednesday, one of the catalysts of such staggering
growth in the biosimilar arena will be the inevitable
that some of the largest name brand biologics will fall over in the
next few years. With biologic patents running out, biosimilars are
likely to sweep in and grab market share.
What's more, there is a dearth of replacement biologics in the
development pipeline over the next few years. And with generic
biosimilars eating away an average 75 percent of profits from brand
name biologic counterparts, you can quickly see the adverse effect
the "patent cliff" will have on the brand name biologic industry.
But the `patent cliff' isn't the only concern among the brand name
pharma companies that manufacture biologics.
Brand-name biologics are some of the most expensive drugs in the
world. The cost of some treatments can reach upwards of $100,000
With generic biosimilar alternatives cutting the cost of treatment
by up to 75 percent, you can quickly begin to understand the
economics behind the move to biosimilars.
Finding ways to keep costs low will be a priority, and will likely
be a boon to companies that make lower cost, generic biosimilars.
With upcoming healthcare reform on the way, sales of biosimilars
will be supported by all developed nations in an effort to keep
costs low for insurance companies (remember those co-pays) and
The boon in biosimilars will happen first in the U.S., and come at
the expense of Europe. So the U.S. is where we want to focus our
I'll return to data provided by Datamonitor which stated that "The
U.S. will account for 72.2 percent of the worldwide biosimilar
market in 2013 and 82.9 percent in 2014. Europe will see its share
plunging from 76.3 percent in 2012 to 26.4 percent in 2013 and 16.3
percent in 2014".
This divergence in growth is because Europe is typically more
lenient with their approval process, so they typically have drugs
that are available to the European market several years before they
are approved for use in the United States.
Given all the information stated, how can we profit from this
inevitable upcoming boom in the biotech industry, and more
specifically in biosimilars?
A few companies are currently interesting, however am not yet aware
of any pure plays on biosimilars. My research indicates that
companies that will thrive in the new industry will be ones with
lots of resources to bring biosimilars to market.
Here are a few of the companies I like in the biosimilar space.
Dr. Reddy's Laboratories (
This is an India-based, mid-cap stock with a market capitalization
of $5.8 billion. Dr. Reddy has proven itself as a quality generic
drug manufacturer. More importantly, it can manufacture generic
products at a 25 percent discount to American companies. This
capability will help it gain market share in the upcoming
cost-driven, health care industry.
Spectrum Pharma (Nasdaq: SPPI)
Spectrum is a $570 million market cap company that recently jumped
into the untapped and growing market of biosimilars. The market has
responded favorably as the stock has nearly doubled since it
announced it has plans to be one of the first biotechs to develop a
biosimilar version of Rituxan. Rituxan is the second biggest
selling product, nearing $6 billion in sales, for brand name pharma
Roche Holdings AG (OTC: RHHBY.PK)
Take a look at these two names, and feel free to send me any that
you are aware of that could become major players in the biosimilars
market. Email me at
This could indeed be a huge opportunity for small cap investors
over the next few years, and one that we should be watching