A Copycat on the Prowl

I guess Teva Pharmaceutical's (NASDAQ:TEVA) purchase of CoGenesys last year didn't give the company as much expertise in biologics as it was hoping. Yesterday, the generic-drug maker said it's partnering with Lonza to develop generic versions of biologics, called biosimilars, or follow-on biologics. "We had identified biosimilars as a major growth driver for Teva in our long-term strategy," said Teva CEO Shlomo Yanai.

He's right about the opportunity, too. There's big money to be made in making copycat versions of biotech drugs. Even pharmaceutical companies can see that -- both Merck (NYSE:MRK) and Eli Lilly (NYSE:LLY) have said they're interested in getting in on sales of the blockbuster biotech drugs. Here are a few biggies:

Sources: Company earnings releases.

Making them isn't going to be as easy as the generic versions of small-molecule drugs that Teva currently makes, however. Biologics are grown in cells rather than synthesized by chemists, which introduces all kinds of complications into their production.

Teva's going to need more than just Lonza's help to get biosimilars on the market in the U.S. It's also going to need the help of Congress, because there's no framework for the FDA to approve these generic drugs at the moment. President Obama has said he is in favor of setting up a system for the FDA to implement, but, with Washington facing bigger problems, it's unclear how quickly that will happen.

But even without a fully developed pathway to develop biosimilars in the U.S., it's smart for companies to get started now. It'll take awhile to set up the manufacturing systems to produce the drugs and they'll be able to sell them in Europe, which already has an approval system in place.

Follow-on biologics might be a boon to the industry, but investors should keep in mind that it's not going to happen overnight.