Pfizer announced Feb. 5 that it will acquire smaller rival Hospira for $16 billion, helping Pfizer enter a market for biosimilars that is expected to grow to $20 billion over the next five years.

Health plans and government payers, like Medicare, are looking for more cost-effective ways to provide beneficiaries with the prescription drugs they need. Biosimilars can cost 20% to 30% less than the higher-price originals, according to industry reports. An overseas market for biosimilars has existed for almost a decade in the European Union and other countries, including Canada, India and Japan. The United States spent a combined $271.1 billion on prescriptions drugs in 2013, which comes to almost $1 for every $10 the country spends on health care. Biologics accounted for about 28% of drug spending that year, up from 21% five years earlier, according to the IMS Institute for Healthcare Informatics.

Hospira is selling biosimilars in Europe and in Australia, and is seeking approval to sell two other drugs in the U.S.

Under the terms of the deal, Hospira shareholders will receive $90 a share in cash, a 39% premium to the stock price on Feb. 4.