While four biosimilars have been approved by the U.S. Food And Drug Administration (FDA) to date, the drug class is still in its infancy.

A biosimilar is an approved drug that it is highly similar to an FDA-approved biologic product, and has no clinically meaningful difference in safety or effectiveness from the original product. Often called copycat drugs, biosimilars offer a cheaper yet comparably effective option to high-priced brand-name drugs. (See also: Amgen Targeting Biosimilars.)

Here are the top challenges faced by biosimilar drug makers that investors need to watch out in his developing market.

Patent and Legal Issues

Biosimilars have brought in a new set of legal hurdles around patent infringements, and a few cases have been lingering for over two years. For instance, Amgen Inc.’s (AMGN) Amjevita, a biosimilar of AbbVie’s (ABBV) Humira (adalimumab) secured FDA approval in September 2016, but is yet to be marketed due to legal hurdles. (For more, see Long Wait for Biosimilar Amjevita.)

Amgen itself is fighting off biosimilar competition on its branded drugs like Epogen and Neulasta, while it was unable to stop Novartis (NVS) Sandoz's Neupogen (filgrastim) biosimilar called Zarxio (filgrastim-sndz).

Production Bottlenecks

Biosimilar manufacturing is complex, as the drugs are derived from living cells. This often leads to higher manufacturing costs and concerns about scalability potential of the manufactured biosimilars. An approved and marketable drug with no legal hurdles may still not be a revenue earner if its production falters. With only four approved biosims in the US, there have been no reported cases of manufacturing bottlenecks, but investors need to be vigilant about potential roadblocks.

Pricing Issue

While the copycat drug class offers a cheaper alternative to brand-name drugs, the discounts are still lower compared to generic drugs. For instance, Pfizer Inc. (PFE) secured approval for Inflectra (infliximab-dyyb), its biosimilar of Johnson & Johnson’s (JNJ) Remicade, in April 2016. However, the price of Inflectra is only 15% lower than that of Remicade, and the much-anticipated launch dented the hopes of deep discounts from biosims. Generics usually cost 80% less than branded drugs.

Regulatory Requirements

The still-in-infancy class of drug is evolving, and so are the rules around it. While the FDA has been prompt in issuing necessary guidelines, it may enforce longer periods to bring the drugs to market. (For more, see FDA's Biosimilar Guidelines May Force Longer Trials.)

There are other potential issues concerning payer education and trust on biosimilars as a reliable and effective class of drugs, as well as around reimbursement eligibility in different clinical settings, but these are expected to get sorted out in the near future with more awareness and drafting of policies.