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Generic-drug maker Teva Pharmaceuticals and contract drug manufacturer Lonza Group have formed a joint venture to make and market copies of biotech drugs, the companies announced Tuesday.

Teva and Lonza provided no financial details of their new arrangement, but the companies said the joint venture will seek to develop so-called biosimilars, also known as bio-generics, which are copies of drugs made from genetically engineered living cells. By comparison, most drugs sold by large drug companies are made relatively easily from synthetic chemicals.

Biosimilars are approved and marketed in Europe, but so far, there is no regulatory pathway for the drugs in the U.S., although Congress is expected to tackle the issue this year or next.

Biosimilars are seen as a potential threat to biotech industry mainstays like Amgen(AMGN Quote - Cramer on AMGN - Stock Picks), Genentech(DNA Quote - Cramer on DNA - Stock Picks) and Biogen Idec(BIIB Quote - Cramer on BIIB - Stock Picks) because their top-selling drugs could face competition. The biotech industry generally acknowledges that biosimilar competition is coming to the U.S. market but says biosimilars should be more tightly regulated than conventional generic drugs because making copies of drugs from living cells is more complicated.

Jerusalem-based Teva is best-known as a maker of conventional generic drugs, with 2008 sales expected to top $11 billion. Last January, Teva purchased CoGenesys for $400 million to boost its know-how in making biotech drugs.

Lonza, based in Basel, Switzerland, is an international supplier to the pharmaceutical industry and is often the company to which biotech firms turn to outsource the manufacturing of their biotech drugs.

"We had identified biosimilars as a major growth driver for Teva in our long-term strategy and have augmented our knowledge base, capabilities and infrastructure to position Teva as a leader in this market," said Shlomo Yanai, Teva's CEO, in a statement.

Both companies said the joint venture is expected to begin operations later this quarter.

In December, Merck(MRK Quote - Cramer on MRK - Stock Picks) announced a new initiative to make biosimilars, starting with an anti-anemia drug similar to that made by Amgen.

Teva shares were up 0.8% to $42.80 in recent trading.

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