Wednesday, 25 September 2013

GlaxoSmithKline Seretide/Advair


A global healthcare company that develops, manufactures and markets pharmaceutical products, including vaccines, over-the-counter (OTC) medicines and health-related consumer products.  I have a holding in my income portfolio (epic code: GSK). 

Since Seretide/Advair represented 21% of GlaxoSmithKline’s sales for the six months to June 2013 and patent protection expired in 2010 in the US (52% of S/A sales) and expires in Europe in 2013 (28%), I thought I would undertake some limited research and look at the current market situation the company faces in this very important area. 

Within the US market it is without doubt that the US FDA have made the barriers to approval for generic and competitive original drugs to Advair higher than in Europe.  A good example of this is SkyePharma’s (epic:SKP) Flutiform that has received European approval as an alternative to Seretide, but the US FDA have not given permission for the marketing of Flutiform without a substantive safety study equivalent to existing products, consequently due to the high levels of cost involved, SKP has put any further work for the USA on the back-burner. 

Evidence of the difficulties faced by potential generic competitors of Advair in the US came from a recent statement from the Mylan Inc. (NASDAQ: MYL) President Rajiv Malik who said: "…. we still believe that the hurdles for a generic Advair remain high and that there will be a very limited number of companies who are able to successfully bring a generic version of this complex product to market."  

Flutiform has approval in Europe and in the UK is about 15-23% (depending on dosage) cheaper than Seretide.  Not unexpectedly the UK health authorities have begun the process of replacing Seretide.  NICE estimate that the average primary healthcare trust (serving 339k people) would save about £167k pa by switching from Seretide to Flutiform.  It is worth noting that although Flutiform is approved for the treatment of asthma in Europe, it is currently not approved for COPD (chronic obstructive pulmonary disease).

So my expectation is for Seretide/Advair to continue to hold up reasonably well in the USA, but expect a different outcome in Europe and Japan (where Flutiform is also approved) and show some sharp declines over the next 2-3 years, unless patients find the Flutiform medication less effective.

As one would expect, GSK is not standing still in the important area of respiratory medicines and is developing enhanced drugs for asthma and COPD including Relvar/Breo (recently approved by the US FDA) and Anoro (not yet approved, but recommended earlier this month by the Pulmonary-Allergy Drugs Advisory Committee to the US FDA). 

Certainly in the past, pills have been fairly easy for generic drug companies to copy, requiring a relatively straightforward chemical synthesis.  The more complex inhaled multiple drugs made of complex biological ingredients; require skills that most generic drug companies don't have.  This creates a substantial barrier to entry, the skill lies just not in the drug itself but also the inhalation device.  It’s worth noting that GSK’s Advair inhalation device in the US is still patent protected until 2016.
The US sales for Advair have held up well since protection fell away for the medicine itself in 2010 and its sales may well continue near the current level, but I fear there may be a different experience in the rest of the world. 
Click on chart to enlarge
This threat underlines the importance of the current strong pipeline of drugs in GSK's portfolio, that are expected to produce 15 new drugs over the next 3 years, a good number in the respiratory sector with its high barriers to entry.

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