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
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
. Biologics are used heavily in the treatment for various
cancers, rheumatoid arthritis and adverse cardiovascular
For the first time in history, Congress has passed legislation
through the new healthcare reform, more specifically the
Patient and Protection and Affordable Care
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 (Nasdaq: 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
There are very few players in the biosimilar arena. And,
biologics and their biosimilars offer some of the highest product
But there are a few well-established small cap generic
drugmakers that will have an overwhelming advantage in this new
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.