Generic pharma companies have patent advantage

The manager of the Finsbury Worldwide Pharmaceutical trust believes companies manufacturing generic medicines will continue to outperform the pharma giants.

Samuel Isaly says the large pharmaceutical companies have worse growth prospects when their patents begin to run out.

In place of these stocks he has been increasing the fund's exposure to generic companies, taking the fund's position in the sector up to 15%.

"With so many patents expiring, generics are experiences tonnage growth," he says.

"We particularly like the Japanese market which has not yet converted from branded products, but where there are Government-backed incentives to drive the growth of generic drug use."

Although six of Isaly's top 10 holdings are large-cap pharmaceuticals, he is generally bearish on the sector.

"They are experiencing patent cliffs and have been unsuccessful in making new discoveries so they are having to buy companies to get growth," he says. Of the names he does own, Isaly singles out Bristol-Myers Squibb and Merck as particularly attractive.

"Bristol-Myers has retooled itself though its ‘String of Pearls' strategy, by acquiring small specialised free-standing businesses in different product classes which should give it overall growth," he says.

"Merck's new product outlook is looking promising."

The second area the manager favours is what he terms biotech discovery. He says he and his team at Orbimed Capital use their expertise to identify companies ahead of their drug launches.

"We are picking up a number of companies that have reached phase two of product testing, before there is a widespread trial," he says.

"We are good at estimating which drugs are going to be a success, and therefore the high growth companies."