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The Next Trend in Biotech Partnerships

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Another day, another partnership to develop biosimilar medications.

Earlier this week Amgen (Nasdaq: AMGN  ) and Watson Pharmaceuticals (NYSE: WPI  ) hooked up, and yesterday it was Momenta Pharmaceuticals (Nasdaq: MNTA  ) linking up with Baxter (NYSE: BAX  ) .

They're not the only ones. Mylan (Nasdaq: MYL  ) partnered with India-based Biocon. Teva Pharmaceuticals (Nasdaq: TEVA  ) signed up early with Swiss-based Lonza.

The companies will tell you they're feeding off each other's strengths, and there's probably something to that. Baxter has a large commercial footprint and Momenta has expertise in characterizing complex molecules.

But I'm getting the feeling that this might be more of a risk-sharing exercise than anything else. Biosimilars are copycats of biologic drugs, which are considerably more complex than small molecule drugs, making the pathway to bring a generic to market considerably more complex.

For small molecule drugs it doesn't really matter how the drug is synthesized as long as you end up with the same chemical structure. But biologics -- proteins like Amgen's Epogen or antibodies like Abbott Labs' (NYSE: ABT  ) Humira -- are produced in living cells. If the process is carried out exactly the same, the product will be the same. But there are many manufacturing variables -- type of cells used, incubation times, and purification methods, among others -- that, if changed, can alter the overall makeup of the protein.

If brand-name drugmakers would share their methods for making the products, identical generics could be produced. But they won't. Why would they?

That leaves regulatory agencies with the decision of determining what's similar enough. A few drugs have been approved in Europe, but they seem to be taking everything on a case-by-case basis. That makes it risky for companies going for a new biosimilar. For biosimilars that have already been approved because another drugmaker manufactures them, there's less risk, but the company is entering a market that already has generic competition.

The Food and Drug Administration hasn't even formally established a pathway to approve biosimilars, so companies are developing them without knowing how much laboratory and clinical data will be required.

With complexity and uncertainty comes risk, so I like the moves that Amgen and Momenta have made. Watson will share costs of development with Amgen, and Momenta is due $33 million up-front from Baxter for six biosimilars and additional milestone payments along the development and regulatory pathway.

The biosimilar market is estimated to be pretty big -- around $2 billion -- but Fool analysts have disovered one that's even bigger. Find out what it is and how to profit from it in our free report, "The Next Trillion-Dollar Revolution." Get your free copy by clicking here.

Fool contributor Brian Orelli holds no position in any company mentioned. Click here to see his holdings and a short bio. The Motley Fool owns shares of Abbott Laboratories, Teva Pharmaceutical Industries, and Momenta Pharmaceuticals. Motley Fool newsletter services have recommended buying shares of Teva Pharmaceutical Industries, Momenta Pharmaceuticals, and Abbott Laboratories. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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  • Report this Comment On December 24, 2011, at 4:54 PM, lgcret wrote:

    Just think, if all of the regulating body had a member of their family very ill, the lives of many other family members around the world would be here this Christmas, because treatment would be available.

    Look at a lot of the other countries, and how they distribute medicines more freely. A plane ride to another country is our only way to be healed of the chronic illnesses in our country.

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