Commentary

Expecting The Biosimilars Market To Boom, Pfizer Cuts Deal For Hospira

Pfizer is buying Hospira, a company that makes injectable drugs and infusion technologies as well as “biosimilars” — generic versions of costly biotech drugs made from living cells — in a deal valued at $15 to $17 billion, depending on whichstory you’re reading. The company’s joint release says Pfizer is paying “$90 a share in cash for a total enterprise value of approximately $17 billion.”

The bottom line is that the 39% premium cash-rich Pfizer will shell out on Hospira’s closing price Wednesday is a big bet on a company that, writes Fierce BioTech’s John Carroll, is “one of the pioneers in the move to develop biosimilars of blockbuster biologics.” 

Biologics, according to the Generic Pharmaceutical Association, “are often the only lifesaving treatments for the most severe diseases” but their price is increasing at a faster rate than any other aspect of healthcare, putting them out of reach for many patients.  

Hospira’s injectable drugs “are widely used in hospitals, through vials, syringes and bags, as well as pumps used to deliver them and other fluids,” write Reuters’ Caroline Humer and Ransdell Pierson. 

The biotech drugs “are more complicated to make — and to copy — than traditional pills and therefore have proved highly resistant to low-cost competition, even after patents ran out,” write Jonathan D. Rockoff, Lauren Pollock and George Stahl in the Wall Street Journal. “But after years of turning to these costly drugs to boost sales, big drug companies like Pfizer are now borrowing from the playbooks of generic makers and developing copycat versions ….”

Estimating that the market could grow to $20 billion in five years from “just a few billion dollars today,” the WSJ reports “Hospira is selling the drugs in Europe and Australia, and has asked health regulators for permission to sell two in the U.S.”

“It’s where the growth is,” Dimitri Drone, a pharmaceutical consultant at PricewaterhouseCoopers, tells the New York Times’ David Gelles and Katie Thomas. “It’s the land of opportunity.”

“‘The reason we think [Hospira] is attractive is simply the technological capability and the experience to be able to develop and manufacture high-quality reliable medicines for a whole range of conditions [including antibiotics to cytotoxic drugs and others] is something really tough to do, and to do well’ John Young, head of Pfizer's established products business, said on a conference call with reporters Thursday,” reports CNBC’s Meg Tirrell. “Pfizer's existing portfolio of injectables includes the antibiotic Zyvox, chemotherapy docetaxel and birth control shot Depo-Provera.”

Pfizer is best known, of course, “for prescription medicines like impotence treatment Viagra and Lyrica for nerve pain, but many of its biggest brands, including cholesterol treatment Lipitor and painkiller Celebrex, have lost patent protection and are facing cheaper generics,” reports Reuters.

One of the reasons investors applauded the deal with their dollars yesterday — Pfizer was up 2.9% — is that it “shifts the Pfizer story back to a narrative that Wall Street likes: that in a few years Pfizer will break itself into two or more separate companies to increase shareholder value,” writesForbes’ Matthew Herper. 

In this scenario, Pfizer would spin off its generic products unit. But the acquisition itself “doesn’t fix the issues,” which are that Pfizer will need “scale in the copycat pill business to work as a standalone generic” unit, Herper maintains. It’s going to have to do a lot of cost cutting to make the deal work on paper, and it may do an even bigger acquisition down the road to make a breakup more viable.  

Pfizer CEO Ian Read “has so far not said there is any formal plan to break up Pfizer, and a person briefed on the company’s thinking said a split was unlikely this year,” the NYT’s Gelles and Thomas report. “But if it does eventually cleave itself in two, Pfizer would follow the path forged by Abbott. In 2013, Abbott spun off AbbVie into a separately traded company. AbbVie is now the larger of the two. “

Meanwhile, “Pfizer aims to cut $800 million in costs in the wake of the deal, and analysts say the only way to get there will be through trimming jobs,” writes Kristen Schorsch in Crain’s Chicago Business. Hospira, which is based in Lake Forest, Ill., employs about 18,000 people worldwide.

“We look to create a combined organization that has the best talent from both organizations,” Pfizer’s Read told analysts.

“The name ‘Hospira’ is derived from the words hospital, spirit, inspire and the Latin word spero, which means hope,” according to the company’s About Us page. There’s no doubt a lot of the latter going around in its offices this morning.

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