Hospira's Bold Move

Hospira (NYSE: HSP  ) isn't known for its flashiness -- the company focuses on drug delivery systems, like syringes, cartridges, and infusion pumps. But the firm announced today a move that will inject it into what may become one of the hottest areas in the drug industry. Unfortunately, realizing the deal's full potential won't be easy.

Hospira will work with BIOCEUTICALS, an affiliate of STADA Arzneimittel AG, to develop a biosimilar version of erythropoietin, or EPO. In exchange for $21 million up front and up to an additional $34 million over the next several years, Hospira will get distribution rights in the E.U., excluding Germany. Hospira also has exclusive rights in the U.S. and Canada, where it will be responsible for developing and manufacturing the biosimilar EPO.

Biosimilars have received some press lately, thanks to the Food and Drug Administration's (FDA) marketing approval of Novartis' (NYSE: NVS  ) Omnitrope, a human growth hormone product. Although the FDA stressed that Omnitrope is not a generic biologic, or biogeneric, the medication will likely play the same role as a generic in the marketplace. The move was significant because, on account of the non-existence of a generic approval process, biologics did not face generic-style competition before the approval of Omnitrope.

For Hospira, the opportunity is notable. Branded EPO is sold in the U.S. and Europe by big companies, namely Amgen (Nasdaq: AMGN  ) and Johnson & Johnson (NYSE: JNJ  ) . The market for branded EPOs, which are used to treat kidney disease and chemotherapy-induced anemia, is large; in Europe alone, EPOs generate sales of $1.4 billion.

However, a near-term windfall probably is not in the offing. Admittedly, BIOCEUTICALS could receive European regulatory clearance for its EPO as early as 2007, but it's not clear that biosimilar EPO will be a super lucrative business in Europe. Government controls keep branded drug prices in Europe artificially low, so biosimilar EPO likely would have to be offered at bargain-basement levels to grab a lot of sales.

In the U.S., patent rights rule out a biosimilar EPO for now. What's more, it's almost certain that Hospira will face heavy competition in the U.S. from Novartis and others that are likely positioning to launch their own versions of EPO as patents expire soon.

The sales potential for biosimilars makes Hospira's latest move well worth watching. Even so, investors should keep in mind that Hospira's success in the area is no slam dunk.

For related content:

Get in the game by signing up for Motley Fool CAPS, our new community intelligence stock-picking service.

Fool contributor Brian Gorman does not own shares in any of the companies mentioned.


Read/Post Comments (0) | Recommend This Article (0)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

DocumentId: 517480, ~/Articles/ArticleHandler.aspx, 4/17/2014 6:48:03 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement