Pfizer, Inc. Invests in Growth... Literally

Source: Pfizer

Pfizer Inc. locked up commercial rights to Opko Health's long-lasting human growth hormone in a deal worth hundreds of millions of dollars. The agreement helps insulate Pfizer's existing HGH drug from potential competition and provides Opko with welcome upfront cash, an established marketing partner, and the potential for sizable milestone and royalty payments.

Innovating existing therapyImproving upon current treatments is a trend that is gaining momentum among drug developers. A number of biotech companies have rolled out, or are in the process of rolling out, new formulations of existing drugs. These next generation formulations can be safer to use and can sometimes reduce the number of doses that are required weekly, which reduces the treatment burden for patients. For example, Gilead Sciences is working on TAF, a new formulation of its widely successful HIV drug Viread, that offers lower toxicity, and Teva Pharmaceuticals is attempting to switchover Copaxone multiple sclerosis patients to a new, long-lasting formulation that can be dosed three times a week, rather than daily.

But it's not just big companies that are getting in on the act. A number of small companies like Opko, which is developing a long-lasting human growth hormone, think that they can build big businesses by reinventing existing therapies too.

Opko's once-weekly human growth hormone, hGH-CTP, is in phase 3 trials as an alternative to existing HGH therapy, which is dosed daily. If Opko's hGH-CTP wins FDA approval, it could mark the biggest advance in HGH treatment in 20 years. In addition to the phase 3 trial studying Opko's drug in adults, Opko is also stuyding hGH-CTP in children, which made it even more attractive to Pfizer, which markets its own pediatric HGH therapy.

Time to make a dealUsing in-house technology, Opko was able to extend the half-life of HGH without using polymers, encapsulation techniques, or nanoparticles. That proprietary approach meant that Opko's formulation couldn't be easily duplicated by Pfizer and posed a threat to sales of Pfizer's existing HGH drug, Genotropin.

Genotropin is a therapeutically equivalent drug to human growth hormone that is used to treat children who were born small, but have not achieved catch-up growth by age two. It is also used in adults and children who have growth hormone deficiency.

The market for human growth hormone therapies totals roughly $3 billion annually, and sales of Pfizer's Genotropin totaled $173 million in the third quarter, giving it an annualized sales run rate just shy of $700 million.

As a result, Pfizer's decision to partner with Opko on hGH-CTP appears to be -- at least in part -- a defensive move to avoid losing Genotropin market share to Opko.

Pfizer also seems to be confident that its existing Genotropin marketing team can turn hGH-CTP into a highly successful drug. Pfizer is handing over a healthy $295 million upfront to Opko and the company has agreed to potentially pay Opko an additional $275 million in milestones that are tied to regulatory approvals. Pfizer has also agreed to pay Opko royalties on global sales of hGH-CTP and eventually to even share profit on hGH-CTP and Genotropin with Opko, if hGH-CTP wins the regulatory OK for use in kids.

Smart movePfizer has enough patent expiration headwinds on its plate to deal with without having to also battle against Opko in the HGH market. Pfizer's ability to lock-up commercialization rights insulates Pfizer's Genotropin sales and gives it an opportunity to reinvigorate the category. Opko is likely smiling, too, given that the deal bulks up its balance sheet and links it up with a major drugmaker with the expertise to turn its drug into a top seller.

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Todd Campbell owns shares of Gilead Sciences. Todd owns E.B. Capital Markets, LLC. E.B. Capital's clients may or may not have positions in the companies mentioned. Todd owns Gundalow Advisors, LLC. Gundalow's clients do not have positions in the companies mentioned. The Motley Fool recommends Gilead Sciences and Teva Pharmaceutical Industries. The Motley Fool owns shares of Gilead Sciences. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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