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MEDILL/Britt Vogel

Hospira Inc. closing prices for 2014

Biosimilars are bright spot in Hospira's future

by Britt Vogel
Feb 12, 2014

After years of tangling with federal food and drug regulators over quality control problems, Hospira Inc. is banking on brighter prospects ahead in the emerging U.S. market for generic biotech medicines.

Wall Street analysts are interested but wary, as the company continues to be weighed down by costly updates and other corrective measures at its manufacturing plants.

“This year again, it’s a remediation year,” said Hospira’s Chief Financial Officer Thomas Werner at the company’s earnings teleconference on Wednesday.

The Lake Forest-based company acknowledges $375 million spent on addressing U.S. Food and Drug Administration citations dating back to 2009, most recently including a December 2013 follow-up inspection, from an FDA warning letter issued in mid-May 2013, that cited nearly two dozen infractions at a company plant in India.

Still, Hospira executives say the company’s world leading injectable drugs and infusion technologies business remains a strong performer and a key springboard for generic bioengineered drugs, called “biosimilars,” that have yet to be introduced in the U.S.

“The opportunity in these therapeutic areas is very large and creates a sizeable market for us to target,” Dr. Sumant Ramachandra, chief scientific officer, said in Wednesday’s teleconference. “We continue to focus our biosimilar efforts in three therapeutic areas – dialysis and chronic kidney disease, oncology and supportive care, and immunology.”

Biosimilars have the potential to revolutionize the biologic market. Prices for these generic versions are expected to run 20 percent to 30 percent less than the branded reference drug.

Indeed, in a global market for so-called biologic drugs estimated at $127 billion annually, Hospira, at last month’s “J.P. Morgan Healthcare Conference” in San Francisco, boasted a biosimilar R&D pipeline with a local market value of $40 billion. With 11 molecules currently in its pipeline, Hospira noted it has one of the largest in the industry.

The first U.S. entrant into the European biosimilar market, Hospira released Retacrit, its first biosimilar drug, in 2008. It launched Nivestim, its second, on the European market in 2010 and the Australian market in 2011. Its third, Inflectra, the result of an alliance with Incheon, South Korea-based Celltrion Inc., was released in Europe in the fall of 2013. The drug, a generic version of the Johnson & Johnson’s branded pharmaceutical Remicade, treats rheumatoid arthritis, psoriasis and inflammatory bowel disease, among other conditions.

“Hospira’s experience with biosimilars coupled with its partnership with Celltrion will definitely give it an advantage,” said Thomson Reuters Corp. Senior Pharmaceutical Analyst Andrew Bourgoin in an interview.

In an April 2013 white paper, Bourgoin and fellow pharmaceuticals analyst Beth Nuskey pointed out that strong performance overseas is expected to position the company well for entry into the forthcoming U.S. market. Hospira has a 34 percent global market share in overall generic injectable drugs, far ahead of the 12-percent share of Germany-based Fresenius Medical Care AG & Co. KGAA.

For the biosimilars market worldwide, Bourgoin and Nuskey said the leaders are Hospira along with Sandoz, the generics division of Switzerland-based Novartis AG, and Israel-based generics powerhouse Teva Pharmaceutical Industries Ltd.

The U.S. market became available to biosimilars with the 2010 passage of “Obamacare.” The FDA has said that biosimilars have the potential to increase competition among pharmaceutical companies, thus lowering prices for consumers and improving patient care outcomes.

But strict regulations and standards imposed by the FDA create a lengthy and expensive approval process required before a drug becomes available to the public.

Bourgoin and Nuskey said in their report that cost barriers to entering the biosimilars industry give big pharmaceutical companies with deep pockets a competitive edge in the U.S. market for the short term. Hospira estimated in its 2012 10K filing that its cost for internally developed biosimilars is expected to range from $100 million to $200 million each, over a seven to eight year period.

The company’s expenses for generic copies of biologic drugs accounted for approximately 16 percent of Hospira’s total R&D pipeline at the end of 2012.

“From an operating margin standpoint, certainly from a growth margin standpoint, biosimilars are an uplift…but there continues to be heavy R&D spending,” said Hospira CFO Werner, in Wednesday’s teleconference.

Wall Street isn’t yet fully on board but interest my be on the uptick. For now, despite Hospira’s leading position in the development of biosimilars, persistant costs both for R&D and remediation of its quality control problems has held back company shares.

“The company definitely has challenges in the next years,” said Morningstar Inc. equity analyst Michael Waterhouse.  “What most people will look into is the manufacturing issues highlighted by FDA.”

But he added, “What Hospira has lost [it has been] regaining now.

Hospira CEO F. Michael Ball struck an optimistic tone at Wednesday’s earnings teleconference, while referring metaphorically to the company’s woes. “Essentially, I feel like we’ve found the ‘gators’ and we’ve developed action plans to take care of them.  And more than that, plans the agency seems to be aligned with so I feel it’s more in our hands now to get the plans executed.

Shares of HSP closed Wednesday at $44.41, up 15 cents or .34 percent from Tuesday’s close of $44.26.

Medill News Service reporter Shu Zhang contributed to this article.