If You Can't Beat 'Em, Join 'Em: Amgen Goes Generic

I guess it was inevitable, but it's still a sad day for branded biotech drugs. Amgen (NAS: AMGN) , synonymous with biologics, has teamed up with Watson Pharmaceuticals (NYS: WPI) to develop several oncology antibody biosimilar medicines.

I wouldn't exactly rank this up with Geron (NAS: GERN) 's decision to drop its stem-cell program or RXi Pharmaceuticals' move to ditch RNAi and change its name to Galena Biopharma. Amgen's move isn't particularly shocking; the company might as well use its expertise to get a piece of the biosimilar market.

But the move marks a sad end to a long run that biologics had. Biosimilars are generic versions of biologic drugs. They are referred to as "similar" only because, unlike small-molecule generic drugs, biologics can't be copied directly since they're produced in living cells. Up until now, biologic drugs enjoyed de facto infinite patent life because there was no pathway for approvals of copycats.

That's changed in recent years, with Europe approving biosimilar drugs and the Food and Drug Administration getting set to establish a pathway forward after the health-care reform bill laid out the framework.

Amgen isn't the first branded drugmaker to step into the biosimilar arena. Pfizer (NYS: PFE) , Merck (NYS: MRK) , Teva Pharmaceuticals (NAS: TEVA) , and a few others have all announced plans to do the same.

The announcement of the partnership between Amgen and Watson was light on the details. Both companies will bring their expertise to the collaboration, but I have to think Watson needs Amgen's knowledge of how to make biologics more than Amgen needs Watson to show it how to sell generic drugs. Then again, it looks as if Amgen is getting a larger fraction of the profits from the partnership, with Watson contributing up to $400 million in co-development costs and due royalties and sales milestones on the biosimilar products.

Biosimilar products will almost certainly be able to manage higher margins than small-molecule generics, because there will be fewer copycats competing for pharmacists' shelf space. How much higher will determine whether this is a great move for Amgen or just a small incremental profit that borderlines on a distraction.

At the time thisarticle was published Fool contributorBrian Orelliholds no position in any company mentioned. Check out hisholdings and a short bio. The Motley Fool owns shares of Teva.Motley Fool newsletter serviceshave recommended buying shares of Teva and Pfizer. Try any of our Foolish newsletter servicesfree for 30 days. We Fools don't all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Motley Fool has adisclosure policy

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