Big Pharma Faces $183B Patent Cliff: Amgen, BMS, and Merck Most Exposed
Introduction
The biopharmaceutical industry is approaching a critical juncture, with a staggering $183 billion in annual revenue at risk due to upcoming patent expirations. However, Morgan Stanley analysts highlight that Big Pharma possesses significant resources to mitigate this shortfall through mergers and acquisitions (M&A). This article explores the patent cliff challenge, the companies most exposed, and the industry’s capacity to respond.
Patent Cliffs and Revenue Exposure
The Magnitude of the Challenge
According to a July 11 report by Morgan Stanley, biopharma products set to lose exclusivity by 2030 currently generate $183.5 billion in annual sales. Amgen, Bristol Myers Squibb (BMS), and Merck are identified as the companies facing the highest revenue exposure due to these impending patent expirations.
Companies Most at Risk
Amgen
Amgen tops the list with 67% of its revenue at risk. The company’s top four products—Prolia, Xgeva, Enbrel, and Otezla—are all approaching their patent expiration dates. In 2023, Prolia and Xgeva alone generated $6.1 billion in sales, with their patents set to expire within the next two years. Enbrel and Otezla, which brought in $3.7 billion and $2.2 billion respectively, will also lose exclusivity by the end of the decade.
To counteract this looming revenue loss, Amgen made a strategic move by acquiring Horizon Therapeutics for $27.8 billion in October. This acquisition added potential blockbuster drugs to Amgen’s portfolio, including Tepezza for thyroid eye disease, Krystexxa for gout, and Uplizna for a rare neurologic disorder.
Bristol Myers Squibb (BMS)
Next on the list is BMS, with 63% of its revenue at risk. The company’s top products, including the blood thinner Eliquis and cancer drugs Opdivo and Revlimid, are all approaching patent expirations. Eliquis generated $12.2 billion in 2023, and Opdivo brought in $9 billion. Revlimid, which made $6.1 billion, has already lost its U.S. exclusivity.
In response, BMS embarked on a significant acquisition spree, purchasing Karuna, Mirati, and RayzeBio in late 2023. Despite these acquisitions, BMS continues to scout for additional deals to mitigate the impact of its patent cliff.
Merck
Merck faces a 56% revenue exposure to patent expirations, primarily due to its blockbuster cancer drug Keytruda. In 2023, Keytruda generated $25 billion, accounting for 42% of Merck’s total revenue. With Keytruda’s patent set to expire in 2029, Merck is under significant pressure to find new revenue sources.
Industry’s Capacity for M&A
Financial Firepower
Morgan Stanley estimates that Big Pharma has $383.1 billion available for M&A. Companies with the most financial resources include Johnson & Johnson, Merck, and Novo Nordisk. This substantial “firepower” positions these companies well to acquire new assets and mitigate the impact of upcoming patent expirations.
Favorable M&A Conditions
The analysts believe conditions for M&A are favorable, citing strong balance sheets and a pressing need to acquire new revenue sources. Terence Flynn, Ph.D., and his team at Morgan Stanley note that large-cap pharma companies have both the capacity and necessity to engage in bolt-on M&A.
Strategic Positioning and Future Outlook
Johnson & Johnson (J&J)
J&J is well-positioned with only 33% of its revenue exposed to patent expirations through 2030, compared to the industry average of 38%. This relative stability provides J&J with a solid foundation to pursue strategic acquisitions without the immediate pressure faced by some of its peers.
Other Key Players
Other companies in favorable positions regarding their patent cliffs include Vertex (6% revenue exposure), Gilead (24%), AbbVie (29%), Eli Lilly (31%), and Pfizer (33%). These companies are expected to be active in the M&A market, leveraging their financial strength to acquire new assets and sustain their revenue streams.
Challenges and Considerations
Regulatory Environment
One significant challenge in the M&A landscape is regulatory scrutiny. The analysts note that uncertainty surrounding the Federal Trade Commission’s (FTC) approach to pharma transactions has impacted deal-making appetites in recent years. However, recent large transactions’ closures indicate that regulatory hurdles may be subsiding, paving the way for increased M&A activity.
Pricing and Market Dynamics
The analysts also highlight the importance of market dynamics and pricing pressures. As competition intensifies and volumes increase, drug prices are expected to come down, influencing the strategic decisions of biopharma companies. For instance, CFO Karsten Munk Knudsen of Novo Nordisk recently noted that price pressure is more intense than anticipated, a trend likely to continue as the market matures.
Conclusion
The biopharmaceutical industry is facing a significant challenge with $183 billion in annual revenue at risk due to upcoming patent expirations. Companies like Amgen, BMS, and Merck are the most exposed, but the industry is well-equipped with substantial financial resources for M&A. As conditions for M&A become increasingly favorable, we can expect a surge in deal-making activities aimed at offsetting revenue losses and securing future growth. The strategic maneuvers made by these companies in the coming years will be crucial in navigating the patent cliff and sustaining their market positions.