A couple of news items recently have provided some support for our long-held view that big pharma companies are unlikely to sustain their current interest in generics once they get over the patent cliff and return to earnings growth driven by innovative drugs.
The first was the announcement on August 15th that GSK was selling a portfolio of 25 established (ie off patent) pharmaceutical products in Australia to Aspen. As GSK is a shareholder of Aspen and has done several deals with it before, this is not so remarkable in and of itself, but GSK’s rationale is telling. To quote the press release, ‘GSK Australia’s future growth will come from patent-protected brand and new products in its pipeline… [as generic price declines have made] the continued distribution of non-promoted and genericised products from GSK Australia Pharmaceuticals unsuitable for planned future growth’. Obvious enough, but GSK clearly feels sufficiently confident about the prospects for its patented portfolio that it is able to jettison the cash flow from its older, declining, products. And this is a company that has managed quite successfully to sell generics alongside patented products in some of the emerging markets, so it has a respectable track record in handling its products post patent expiry. Given that the environment for off-patent brands in Australia is not noticeably worse than it is in, say, western Europe, it will be interesting to see if GSK follows up the Aspen deal by disposing of some of its established products elsewhere in an effort to increase its earnings growth rate.