Biotech Going Generic - Threat To High-flying Companies? (NVS)

| About: Novartis AG (NVS)

The Stalwart submits: Might this imply lower Biotech PE multiples going forward? Sandoz, the generic drug unit of Novartis AG (NYSE:NVS), has received approval for the first ever generic biotech drug. Motley Fool sounds the alarm:

The case has broad implications for biotech drug makers. Until now, companies selling biologics have not had to worry about the kind of generic competition that typically erodes sales of branded medications at the end of their patent life. Six product areas -- insulin, human growth factor, epoetin, colony stimulating factors, interferon alpha, and interferon beta -- with $20.2 billion in global sales, are immediately vulnerable to competition from biogenerics, according to Datamonitor.

But the American FDA has yet to approve the process for allowing biogenerics to come to market:

The approval give[s] a boost to Novartis' long-running dispute with the Food and Drug Administration about opening the United States to generic biologics, also called biosi milar medicines or follow-on proteins. In addition to the European Union, Australia approved Omni trope sales last year.

Also, while the approval process for biogenerics may be in place, they are still more costly to test than their purely chemical predecessors, especially when the FDA stalls in its decision making.

Big brand-name drugmakers such as Pfizer, Schering-Plough and Johnson & Johnson oppose follow-on biologics. They argue the science of biotechnology is too complex to be copied and knock- offs must undergo extensive human trials. Currently, biologics have no generic competition in the United States, which cuts into sales of branded chemical medications when their patents expire.

Regulators in Australia and the European Medicines Agency found the growth hormone made by Sandoz showed comparable quality, safety and efficacy to Pfizer's Genotropin.

Sandoz sued the FDA last year, and this month Ricardo Urbina, a judge in the U.S. District Court for the District of Columbia, ordered the FDA to make a decision.

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