In a major step forward for Novartis' (NYSE: NVS ) biogenerics strategy, the Food and Drug Administration has cleared the company's generic version of human growth hormone. While the approval won't immediately lead to a flood of cheaper biologics, the writing is on the wall. More such drugs will likely hit the market in the relatively near future, and it looks like Novartis will be a major beneficiary.
Novartis took the FDA to court to force the agency's decision on the drug in question, known as Omnitrope. Despite clearing the medicine, the FDA was quick to point out that the approval does not establish a pathway for true biogenerics. Instead, the agency is calling Omnitrope a "follow-on protein product" with enough similarity to marketed products that it can be approved based on what is known about those previous products. The agency noted that it is not rating Omnitrope as therapeutically equivalent to approved human growth hormone products.
From a practical standpoint, though, Omnitrope is likely to be treated by physicians as a substitute for branded products. The sales potential is substantial, especially since the drug has been approved in Europe as well. Pfizer's (NYSE: PFE ) branded human growth hormone Genotropin alone racked up worldwide sales of $808 million last year. With analysts expecting Omnitrope to be offered at a 25% discount to branded products, Novartis' offering should have a good chance at capturing a sizable chunk of the market.
It's also clear that Novartis is not done pushing the biogenerics envelope. The company has five more unspecified "biosimilar" medicines in different stages of development. And with biologics playing a bigger part in raising the nation's drug bill, the company will likely have lots of allies in its crusade to bring cheaper versions of such medicines to the market. With Omnitrope now approved, it's looking increasingly likely that Novartis will get its way on biogenerics, and that's good news for the company's investors.
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Fool contributor Brian Gorman is a freelance writer in Chicago. He does not own shares of any companies mentioned in this article.