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Pfizer (NYSE:PFE) is still trying to recover from the patent loss of Lipitor, the best selling drug of all time. Revenues for 2012 were down 10 percent from 2011. I've continued to hold Pfizer because I believe recently approved drugs Apixaban and Tofacitinib could be huge growth catalysts. But in the most recent fourth quarter earnings call an answer about biosimilars caught my eye.

Mikael Dolsten - President, Worldwide Research and Development

Yeah. We just completed successfully with our first biosimilar. I briefly mentioned earlier trastuzumab which is the name for Herceptin, completed Phase 2 and/or exploring plans for a Phase 3 opportunity this year. The second that Ian alluded to rituximab is going to complete in this year a Phase 2 study. So you can see its good momentum. We're using the deep skills in biopharmaceuticals and manufacturing in Pfizer to provide quality data.

In this same earnings call, Pfizer CEO also mentions that they are working on 3 other biosimilars but they are not nearly as far along on those molecules as Trastuzumab and Rituximab. As an investor in Pfizer, this is exciting news. I have written on the huge opportunity that biosimilars present for pharmaceutical companies and it is good to see Pfizer getting in on this huge potential market. Pfizer originally dipped its toe in the biosimilar market with a deal to develop generic insulin with Biocon, but that deal recently fell apart.

For those that aren't familiar with biosimilars, they are essentially generic versions of biologic medications such as Humira, Enbrel, and Herceptin. Since these drugs are much more complex than standard medications, a true generic is technically impossible. Therefore companies have to put their biosimilars through rigorous clinical studies to get approved. Once approved, biosimilars will also have to use different names than the biologic they are competing with. These differences lead to much higher development and marketing costs compared to standard generic medications. Currently, there are few biosimilars in the marketplace, but in a few years these two drugs could be adding substantially to Pfizer's bottom line.

Trastuzumab
More commonly known as its brand name Herceptin, Trastuzumab is used to treat HER-2 positive breast and stomach cancer. Pfizer has already completed a Phase I trial comparing the pharmacokinetics of its biosimilar with Roche's Trastuzumab. Pfizer is not alone in its quest for a biosimilar of Trastuzumab, a team of Biocon and Mylan have already started Phase III trials of their biosimilar version of Trastuzumab so they are ahead of Pfizer. Even so, if Pfizer's biosimilar version were to conquer 20% of the Trastuzumab market, it would add around 700 million in revenue per year assuming a 40% discount to the brand name version.

Rituximab
One of the best selling drugs in the world, Rituximab is approaching 7 billion in sales a year. Rituximab can be used for a variety of conditions including leukemia, lymphoma, and a few autoimmune disorders. The patent for Rituximab expires in 2013 but Roche (OTCQX:RHHBY) doesn't expect any competitors to enter the market until 2015. This timeline makes sense considering Pfizer only plans to complete Phase II trials by the end of 2013. Also both Samsung and Teva have had problems with their biosimilar version of Rituximab. Once again, if Pfizer were to get 20% of the market and sell its version at a 40% discount they would rake in a little over 800 million a year with its biosimilar version of Rituximab.

As you can see, even with moderate success, these two drugs could add over 1.5 billion dollars to Pfizer's annual revenue. How much profit that would add is difficult to determine. Manufacturing and marketing costs are going to be substantial and will eat into margins quite a bit. It is also important to mention these drugs are by no means sure things. They still have a long way to go to get approved and gain market acceptance. The whole biosimilar market is in its infancy, so it is extremely difficult to predict, but as a Pfizer stock owner, I am glad they are forging ahead in this exciting new market.

Source: Biosimilars Could Be An Unlikely Boost For Pfizer