Pharmaceutical industry review for 2024, trends in new drug approvals, the balance of small molecules and biologics, and the impact of major vs small companies.
The biopharma industry is facing a significant challenge as a wave of patent expirations looms on the horizon, threatening to erode billions of dollars in annual sales. According to a research note from Morgan Stanley, dated July 11, products losing exclusivity through 2030 are expected to impact $183.5 billion in annual sales. This impending patent cliff will notably affect major players like Amgen, Bristol Myers Squibb (BMS), and Merck, which face substantial revenue exposure.
Financial Readiness for Mergers and Acquisitions
In response to these upcoming patent expirations, the biopharma industry is well-positioned to pursue mergers and acquisitions (M&A) as a strategic countermeasure. Morgan Stanley estimates that the industry has a substantial war chest of $383.1 billion available for dealmaking, based on company financial reports and data from Visible Alpha and FactSet. Johnson & Johnson (J&J), Merck, and Novo Nordisk are identified as having the most resources for potential acquisitions.
Strategic M&A Landscape
The analysts at Morgan Stanley, led by Terence Flynn, Ph.D., emphasized the favorable conditions for bolt-on M&A activities. Large-cap pharma companies have significant balance sheet capacity and a pressing need to acquire external revenue sources to mitigate the impact of patent expirations.
J&J is in a relatively strong position, with only 33% of its revenue exposed to patent expirations through 2030, compared to an industry average of 38%. Other companies in favorable positions include:
- Vertex Pharmaceuticals: 6% revenue exposure
- Gilead Sciences: 24% revenue exposure
- AbbVie: 29% revenue exposure
- Eli Lilly: 31% revenue exposure
- Pfizer: 33% revenue exposure
High-Risk Companies and Strategic Moves
Conversely, Amgen faces the greatest revenue risk, with 67% of its revenue exposed to patent expirations. The company’s top four products—Prolia, Xgeva, Enbrel, and Otezla—are all set to lose exclusivity by the end of the decade, posing significant challenges.
To address this, Amgen made a strategic move with its $27.8 billion acquisition of Horizon in October. This acquisition brought potential blockbuster drugs such as Tepezza, Krystexxa, and Uplizna into Amgen’s portfolio. Despite this, the analysts caution that significant exposure risks remain for many companies, and the Federal Trade Commission’s (FTC) approach to pharma transactions has previously impacted deal appetites.
Merck’s Patent Cliff Challenge
Merck also faces considerable challenges, with 56% of its revenue exposed to patent expirations. The impending loss of exclusivity for the mega-blockbuster cancer drug Keytruda, which accounted for 42% of Merck’s total sales last year, is particularly concerning. The analysts emphasized that Merck needs to leverage its balance sheet capacity to offset the revenue loss from Keytruda.
Future M&A Prospects
Given their recent transaction activities, AbbVie, BMS, and Pfizer are more likely to pursue acquisitions over the medium term. These companies are actively seeking opportunities to bolster their portfolios and mitigate the revenue impact from patent expirations.
In summary, the biopharma industry is poised to navigate the impending patent cliff through strategic M&A activities. With significant financial resources at their disposal, major players like J&J, Merck, and Novo Nordisk are well-positioned to acquire external revenue sources. However, companies like Amgen and Merck face substantial challenges and must continue to seek strategic acquisitions to safeguard their revenue streams and sustain growth in the face of expiring patents.
Pharmaceutical Industry
Pharmaceutical Industry
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