Teva Buys In to Biologics

If 2007 was the year that pharmaceutical companies fell in love with biologics, perhaps 2008 will be the year that generic-drug makers follow suit.

Yesterday, Teva Pharmaceuticals (Nasdaq: TEVA) announced that it was acquiring privately held CoGenesys, which was spun out of Human Genome Sciences (Nasdaq: HGSI) in 2006, for $400 million in cash.

Teva already has some experience with making biologics -- mostly abroad, although it does make human growth factor for the U.S. market -- but the acquisition of CoGenesys should allow Teva to get a better foothold in follow-on biologics ahead of any Congressional decision that gives the FDA the power to approve them.

Teva may be the market leader in generic drug sales, but it's been slow to jump on the follow-on biologics press-release bandwagon. In its third-quarter earnings conference call, Teva did mention that it has some marketing applications pending for generic equivalents of biotech drugs in Europe, but it didn't go into much detail. Still, the company is trailing Novartis (NYSE: NVS), which recently gained European marketing approval for a follow-on version of Johnson & Johnson's (NYSE: JNJ) Eprex, which is marketed in the U.S. by Amgen (Nasdaq: AMGN) and J&J as Epogen.

The acquisition brings more than just expertise that might help Teva in creating future copycat drugs; CoGenesys also has a pipeline of drugs based on its albumin fusion technology. Like Abraxis BioScience's (Nasdaq: ABII) nab technology, CoGenesys uses albumin -- a naturally occurring blood protein -- to protect drugs, which makes them work better and last longer in the body.

Now that it controls CoGenesys, Teva might be interested in fusing albumin to its multiple sclerosis (MS) drug Copaxone. Increasing the stability of the drug, which decreases the frequency with which patients have to inject themselves, might help Teva compete in the increasingly competitive MS market.

Teva may have overpaid for CoGenesys, but probably not by much. Given its rather small pipeline, I wouldn't have invested in CoGenesys with a market cap of $400 million, but Teva likely views the purchase as getting additional manufacturing experience with the pipeline as a bonus.

Seems like a good time to investigate your options for investing in follow-on biologics.