UPDATED: Pfizer beefs up on biosimilars with $15B Hospira deal

Pfizer CEO Ian Read

Pfizer CEO Ian Read is dipping into the pharma giant's big reserve of cash to gobble up Hospira ($HSP), one of the pioneers in the move to develop biosimilars of blockbuster biologics.

The Big Pharma is paying $90 a share for Hospira, or about $15 billion, after carefully lining up support from the injectables company's board of directors. And Pfizer ($PFE)--beleaguered by lingering doubts about the company's strategy in the wake of its derailed attempt to buy AstraZeneca ($AZN) for $118 billion--was quick to boast about the immediate revenue boost it will be getting from the generics injectables business as well as a swelled portfolio of biosimilars in the late-stage pipeline and on the European market.

Hospira was in the leading wave of companies to get aggressive about biosimilars several years ago, a business that Pfizer estimates could be worth $20 billion in annual sales. The company partnered with Celltrion to get started. And the market has been making some rapid progress over the past year, positioning Pfizer for some badly needed progress in product development.

Just days ago Pfizer won FDA approval of Ibrance (palbociclib), a new cancer drug, with an accelerated development program. But the approval couldn't mask Pfizer's trouble in developing a major pipeline of new therapeutics. Biosimilars offer a chance at derisked development with a slate of late-stage programs as its established products group looks to beef up sales. But there's also plenty of competition crowding the arena, as illustrated by an expert panel's recent recommendation of Novartis' ($NVS) Neupogen knockoff, which is likely to win the first U.S. approval in the market.

On January 12 Hospira filed for an FDA approval of its copycat version of Amgen's ($AMGN) Epogen (epoetin alfa) and Janssen's Procrit (epoetin alfa). Hospira won the EMA's first approval of a biosimilar antibody with Inflectra (infliximab), a Remicade knockoff, back in 2013. The company launched Retacrit (epoetin zeta) in Europe in early 2008, following up with Nivestim (filgrastim) in 2010.

Pfizer reckons it can carve out $800 million in costs at Hospira as it absorbs the company. And Bernstein analyst Ronny Gal believes that the company is also going to have to chop some of the biosimilars its picking up in the deal.

"Hospira has four of its own products and half a dozen products from Celltrion," writes Gal. "The two internal products (Neupogen, Neulesta, Epogen, Aranesp) will be carried over and accelerated. Rationally, those will do better globally in Pfizer hands. The Celltrion products are essentially a one-to-one replica of Pfizer programs and involve material profit sharing (undisclosed but not far from 50%) with Celltrion. Further, we would argue Pfizer's development program is much more robust. It is very likely the regulators will ask Pfizer to divest, or even if they don't--we think Pfizer will likely cut most of the Celltrion products."

So where does Pfizer go from here? After AstraZeneca managed to see off Pfizer's unwelcome bid, the pharma giant has gone on a deal spree, inking a slate of deals that includes an $850 million upfront to partner with Merck KGaA on a preclinical immuno-oncology program. Read made clear a few days ago that he was more interested in new deals that would offer some near-market opportunities, which in retrospect was a clear signal of today's buyout.

But Pfizer isn't done yet. The company went into the deal to acquire Hospira with $33 billion in cash reserves and a bad need for new M&A. The company clearly has plenty of buying power and an appetite for more.

- here's the release