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'
For Hospira, the opportunity is notable. Branded EPO is sold in the U.S. and Europe by big companies, namely Amgen
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.
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Fool contributor Brian Gorman does not own shares in any of the companies mentioned.