Sandoz CEO Richard Francis is optimistic about the global outlook for biosimilars, underpinned by an impressive European launch of a copycat version of Roche Holding AG's Rituxan in the second half of 2018, as he looks to the insulin market for future growth.

Sandoz, the generic business of Novartis AG, recently introduced biosimilar versions of Humira for rheumatoid arthritis — the biggest-selling drug in the world — and Crohn's disease treatment Remicade in Europe, as well as a treatment for a side effect of chemotherapy called Neulasta. These launches are expected to drive near-term growth for the Holzkirchen, Germany-based company, which has more than 50% volume share of all biosimilars approved in the U.S., Europe, Japan and Australia.

Rixathon has overtaken Roche's original biologic Rituxan to become the top seller in Germany, but Francis cautioned that the growth trajectory is likely to be bumpy due to rival copycat medicines hitting the market and potential supply issues among competitors. Rituxan sales plunged 47% in 2018 due to the impact of rival drugs in Europe.

"I feel very good about the biosimilar business globally but particularly in Europe," Sandoz CEO Richard Francis told S&P Global Market Intelligence in an interview on the sidelines of Novartis' annual results recently. "Now, the growth trajectory won't be as linear as [Novartis' Cosentyx and Entresto] because at some point we'll have another rituximab join the market. … So the growth will still keep coming but some of those gradients of growth will change."

In spite of the strong start for Rixathon in Europe, Sandoz decided not to proceed with its U.S. regulatory application after the FDA requested more information which would have resulted in it not being the first biosimilar to the U.S. market.

Biosimilars are cheaper and clinically similar versions of complex branded biologic medicines, which are made inside living cells.

The future is insulin

While biosimilar uptake is lagging in the U.S., where the FDA has approved only 15 such medicines compared with the 60 approved so far by the European Medicines Agency, recent changes to U.S. drug and biosimilar regulations are intended to encourage the development of cheaper versions of insulin.

Crucial to the treatment of diabetes, a disease which affects more than 433 million people across the world according to the World Health Organization, insulin has been produced for more than 100 years and the market is 90% controlled by France's Sanofi, Denmark's Novo Nordisk A/S and Eli Lilly and Co. The price of insulin increased more than threefold in the 11 years to 2013, according to a 2016 study published in the medical journal JAMA.

FDA Commissioner Scott Gottlieb announced plans to incentivize the development of cheaper copycat insulins by categorizing them as biosimilars on Dec. 11, 2018, a move immediately seized upon by Sandoz. A week later, Sandoz announced a deal with China's Gan & Lee to develop and manufacture insulin. The Chinese alliance is focusing on aspart, lispro and glargine, which are marketed as NovoRapid, Humalog and Lantus, among others, and are the top three insulins on the market.

"When you look at insulin, there are two things: barriers to entry, and there's also a big price issue. The big insulin manufacturers have been taking price increases continuously — that's not a criticism of them, [it] just means that market is very big — I also think it creates an access issue," Francis said. "So from an access point of view, that feels like an opportunity. From a market size, it is massive and there's no real innovation coming."

The Sandoz CEO said he is looking at a time frame in the "early to mid-20s" to launch the first rival insulin.

Sandoz has been developing biosimilars since 1996 and received the first approval in the world for a biosimilar version of growth hormone Omnitrope a decade later. It got the first approval for such a medicine in the U.S. in 2015 with Zarxio, also known as filgrastim.

18-month transformation?

Sandoz is positioning itself to take advantage of increasing demand for complex generic medicines and biosimilars after continuing pricing pressures in the U.S. generics market saw drug sales fall by 7% in 2018, while demand for biosimilars rose by 24%. With the divestment of the U.S. oral solids dermatology business ongoing, Sandoz is embarking upon an 18-month turnaround period in which the CEO expects to shed various operations around the globe and become an autonomous unit within Basel, Switzerland-based Novartis.

Francis would not be drawn on which countries Sandoz is likely to exit, pointing out the complexity of manufacturing and developing different products for 150 countries: "The more we think about reducing that, the more we allow ourselves to be more successful — or have more chance of being successful — in those areas where we really must win," he told S&P.

Novartis CEO Vas Narasimhan, who has spent his first year in the job refocusing the drugs company on science and data — jettisoning the consumer joint venture with GlaxoSmithKline plc and carving out Alcon into a separate entity — told reporters that Sandoz is facing an ambitious transformation program. Although he refused to speculate about a possible divestment at the end of its 18-month overhaul, which analysts continue to suggest as a likely outcome, he said the overlap in manufacturing for Sandoz and Novartis was "not a particular constraint" for Sandoz. "I don't see this as a problem," he said.

"Sandoz had a solid year in a challenging environment," Narasimhan said at the company's annual results presentation Jan. 30. The plan right now is to really build an autonomous company that is able to compete, he added.

"Separation of the Sandoz generics business from the broader Novartis group appears highly likely, in our view, and could crystallize modest value for shareholders," said Deutsche Bank's Tim Race in a note. He rates the stock a "hold."

"We have set ourselves up for sustainable success: grow the top line and grow the bottom line," Sandoz's Francis said.

"The plan we have for transformation doesn't require any change in ownership to execute it."