As big shifts in the Pharmaceutical industry continue, Reuters is reporting that several large pharma companies, including Abbott, Merck and Sanofi, are considering selling off their portfolios of compounds that have lost patent protection. From a pharma company’s perspective, branded generics can still be quite lucrative, especially in developing markets, but they are turning out to be a slow-growth business. So it kind of makes sense to sell them off and focus on high-growth products, if that’s your strategy. However, think about what these companies are actually selling. Drugs that have gone off patent are already sold by multiple generics companies world-wide, and for significantly lower prices. What a branded generic has going for it is, well, the brand name, and its reputation for quality.
You might expect that selling a branded generic franchise from the original big pharma owner to a generics company (or to a firm like Valeant) would undermine its reputation value to consumers. Kind of like selling the BMW 3 series brand to Fiat when several other low-cost auto manufacturers already make exactly the same car. How much would Fiat pay for that?
What these proposed transactions imply is that the brand is independent enough that consumers will not care who makes or markets the pills (of course many drugs are actually made by third-party contract manufacturers anyway). On the one hand, Bayer Aspirin still commands a higher price than dozens of generic versions of aspirin, over a hundred years after its invention. On the other hand, Bayer hasn’t tried to sell its aspirin brand to Teva.