Big pharma is at a crossroads, as J&J, Merck and others prepare to lose heaps of revenue from blockbuster drugs

Big
pharmaceutical
companies
such
as


Bristol
Myers
Squibb,


Merck
and


Johnson
&
Johnson
face
a
looming
threat
that
will
put
tens
of
billions
of
dollars
in

sales
at
risk
between
now
and
2030,
as

blockbuster
drugs
will
tumble
off
a
so-called

patent
cliff.

That
refers
to
when
a
company’s

patents
for
one
or
more
leading
branded
products
expire,
which
opens
the
door
for
competitors
to
sell
copycats
of
those
drugs,
often
at
a
lower
price.
That
typically
causes
revenue
to
fall
for
drugmakers
and
costs
to
drop
for
patients,
who
can
access
more
affordable
options.

Certain
drugmakers
appear
well
prepared
to
offset
some
losses
from
upcoming
patent
cliffs,
as
they
build
their
drug
pipelines
and
ink
acquisitions
or
partnerships
with
other
companies,
some
Wall
Street
analysts
said.

Patent
cliffs
are
an
unavoidable
issue
for
pharmaceutical
companies.
They
must
replenish
older
top-selling
drugs
with
new
ones
that
they
hope
will
not
just
sustain
their
sales,
but
also
grow
them.

The
loss
of
exclusive
rights
on
a
drug
can
affect
companies
differently,
depending
on
how
much
of
their
sales
they
get
from
the
product
or
what
type
of
treatment
it
is.
Some
drugs
facing
patent
expirations
will
also
be
subject
to
the
Biden
administration’s

Medicare
drug
price
negotiations,
a
policy
that
may
further
threaten
the
companies’
revenues. 

The
top
20
biopharma
companies
have
$180
billion
in
sales
at
risk
from
patent
expirations
between
now
and
2028,
according
to
estimates
from
EY.

“It
does
differ
by
company
at
this
stage,
and
I
think
there
are
a
number
of
products
in
the
’25,
’30
timeframe
that
will
be
major
growth
drivers
for
large
biopharma
companies
…
but
all
in
all,
there
are
plenty
of
companies
that
have
revenue
holes
to
plug,”
William
Blair
&
Company
analyst

Matt
Phipps
told
CNBC.

Patent
cliffs
could
differ
depending
on
whether
the
product
is
a

small-molecule
drug
–
meaning
it’s
made
of
chemicals
that
have
low
molecular
weight
–
or
a

biologic,
or
a
medicine
derived
from
living
sources
such
as
animals
or
humans.

Many
of
the
biggest
drugs
facing
upcoming
patent
expirations
are
biologics,
including
Merck’s

Keytruda,
J&J’s

Stelara
and
Bristol
Myers
Squibb’s

Opdivo.
Those
drugs
will
inevitably
rake
in
less
revenue,
but
it
may
take
time
before
so-called
biosimilars
threaten
their
dominance. 

Investors
will
get
updates
on
Merck
and
Bristol
Myers
Squibb’s
plans
for
the
years
ahead
when
they
report
earnings
on
Thursday
and
Friday,
respectively.

Phipps
said
biosimilars
have
historically
“had
trouble
gaining
market
share”
from
their
branded
counterparts.
That’s
unlike
generics,
which
are
cheaper
copycats
of
small-molecule
drugs
like
Bristol
Myers
Squibb’s

Eliquis. 

The
difference
is
that
many
biosimilars

aren’t
identical
copies
of
branded
biologic
drugs,
while
generics
are. 

That
means
biosimilars
are
not

interchangeable:
Pharmacists
can’t
directly
substitute
a
branded
biologic
for
a
biosimilar
when
filling
a
prescription.
Not
all
patients
will
react
to
a
biosimilar
in
the
same
way
as
they
do
to
a
biologic,
which
makes
some
physicians
more
wary
of
switching
patients
to
them.

Biosimilars
also

cost
much
more
to
research
and
develop,
and
are
more
complex
to
manufacture,
than
generics,
making
biosimilar
makers
less
willing
to
sell
them
at
significant
discounts
to
branded
counterparts,
Phipps
noted. 

One
example
is


AbbVie‘s

Humira,
a
biologic
that
helps
treat
an
array
of
inflammatory
diseases.
Several
biosimilars
of
Humira

debuted
on
the
market
last
year,
but
the
drug
has
so
far

only
lost
2%
of
its
market
share
to
those
copycats,
according
to
a

report
released
this
month
by
Samsung’s
biopharmaceutical
subsidiary,
Bioepis. 

That’s
partly
because
the
drugmaker
has
offered

rebates
on
Humira
to
pharmacy
benefit
managers.
Its
lower
price
has
cut
revenue,
but
it
is
also
helping
the
drug
stay
competitive.

“What’s
really
impacted
is
not
volume
in
the
market,
it’s
price,”
Piper
Sandler
senior
analyst

Christopher
Raymond
said. He
added
that
Humira
is
a
highly
profitable
drug,
so
AbbVie
can
set
a
lower
price
and
“still
maintain
a
very,
very
decent
margin.”

Still,
AbbVie
expects
that
Humira’s
revenue
declined
by
35%
last
year
compared
to
2022,
when
the
drug
raked
in
more
than
$21
billion.

Raymond
forecasts
a
33%
drop
in
2023
and
an
identical
decline
in
2024,
to
slash
its
revenue
to
about
$9.5
billion.  

JPMorgan
sees
the
upcoming
patent
cliffs
in
the
mid-2020s
as
“largely
manageable”
as
drug
pipelines
improve,
and
expects
the
biopharmaceutical
industry’s
sales
to
be
“roughly
stable”
through
2030,
analyst
Chris
Schott
said
in
a
note
in
December. 

Take
Merck:
Schott
wrote
in
a
January
note
that
the
company
“has
made
substantial
progress
in
addressing
its
post
Keytruda”
patent
expiration,
adding
that
the
company’s
“post
2028
profile
is
looking
increasingly
attractive.”

During
the
JPMorgan
Health
Care
Conference
earlier
this
month,
Merck
CEO
Robert
Davis
said
the
company
expects
to
have
more
than

$20
billion
in
sales
from
oncology
drugs
by
the
mid-2030s,
which
is
double
the
forecast
the
company
provided
during
the
same
time
last
year. 

That
improved
outlook
now
includes
three
antibody-drug
conjugates
–
which
target
cancer
cells
and
minimize
damage
to
healthy
ones
–
from
the

licensing
agreement
Merck
inked
with

Daiichi
Sankyo
in
October.
It
also
includes
Merck
and


Moderna‘s
personalized
cancer
vaccine,
which
has
yielded

promising
mid-stage
data
when
combined
with
Keytruda
to
treat
the
most
deadly
form
of
skin
cancer. 

The
company
also
hiked
its
revenue
outlook
for
cardiometabolic
drugs
to
around
$15
billion
by
the
mid-2030s,
up
from
a
previous
guidance
of
$10
billion. 

Davis
noted
that
Merck
views
Keytruda’s
patent
expiration
as
a
“hill,
not
a
cliff,”
and
is
focused
on
making
“the
dip
as
small
as
possible
and
the
return
to
growth
as
fast
as
possible.”

Meanwhile,
JPMorgan’s
Schott
said
shares
of
Bristol
Myers
Squibb
had
a
challenging
2023,
as

new
drugs
ramped
up
“slower
than
expected.”

But
JPMorgan
expects
those
new
products,
along
with
the
drugmaker’s
recent
acquisitions
and
growing
mid-
to
late-stage

pipeline,
will
“ultimately
position
the
company
for
growth”
after
upcoming
patent
expirations.
For
example,
Bristol
Myers
Squibb
acquired


Karuna
Therapeutics,
which
develops
drugs
for
psychiatric
and
neurological
conditions,
for
$14
billion
in
December.

Meanwhile,
Schott
said
he
believes
J&J
is
“well
positioned
for
healthy
growth”
after
Stelara’s
patent
expires.
The
firm
believes
the
company’s
pharmaceutical
business
can
deliver
mid-single
digit
sales
growth
through
2030,
he
wrote
in
a
December
note.

J&J’s

medical
devices
business
is
also
becoming
a
bigger
share
of
the
company’s
revenue,
which
could
help
the
company
offset
the
Stelara
patent
cliff,
CFRA
analyst

Sel
Hardy
said.
The
business
raked
in
roughly

$30
billion
of
J&J’s
total
$85
billion
in
2023
sales. 

In
addition
to
internal
developments, companies
will
likely
look
for
opportunities
to
acquire
more
drugs,
particularly
those
in
late-stage
development
that
are
close
to
entering
the
market,
said

Arda
Ural,
EY’s
Americas
industry
markets
leader
in
health
sciences
and
wellness.

The
biotech
and
pharmaceutical
industry
is
also
starting
the
year
off
with
about
$1.4
trillion
on
hand
to
make
deals,
he
added.

To
avoid
losing
revenue,
pharmaceutical
companies
are
also
moving
to
delay
competition
or
extend
patent
protections
on
drugs. 

Merck
is
testing
a

new,
more
convenient
version
of
Keytruda
that
can
be
injected
under
the
skin
rather
than
through
intravenous
infusion.
If
that
new
form
is
approved,
it
may
land
the
company
a
separate
patent
and
extend
Keytruda’s
market
exclusivity
by
several
years. 

Bristol
Myers
Squibb
is
also
testing
a

new
form
of
Opdivo,
which
is
currently
administered
into
a
patient’s
veins.
A
version
that’s
injected
under
the
skin
showed
promising

results
in
a
late-stage
trial
in
October,
and
could
also
lead
to
extended
market
exclusivity.

J&J’s
strategy
with
Stelara
is
a
bit
different.

In
2022,
J&J
sued


Amgen
over
its

plan
to
market
a
biosimilar
for
Stelara,
saying
it
would
infringe
two
patents
for
the
drug.
J&J

confidentially
settled
that
lawsuit
in
May,
but
will
allow
Amgen
to
sell
its
biosimilar
of
Stelara
no
later
than
2025. 

A
month
later,
J&J
reached

similar
settlements
with


Alvotech
and


Teva
Pharmaceuticals,
which
are
also
planning
to
launch

a
biosimilar
of
Stelara. 

“Pharma
is
doing
what
they
can
to
make
sure
that
they
squeezed
that
the
most
they
can
out
of
these
drugs
before
they
open
up
widely,”

Mike
Perrone,
Baird’s
biotech
specialist,
told
CNBC.
But
he
noted
that
“while
you
can
tack
on
some
years
and
extend
revenues,
there’s
only
so
much
time
you
can
add.” 

Medicare
drug
price
negotiations
under
the
Inflation
Reduction
Act
are
an
additional
threat
to
companies,
but
how
the
policy
affects
revenues
could
differ
depending
on
when
a
drug
loses
exclusivity. 

Medicare
is
beginning
price
talks
for
the

first
round
of
10
prescription
medications
this
year.
The
talks
include
Stelara
and
Eliquis,
along
with
a
few
other
treatments
facing
patent
expirations. 

By
the
fall,
the
federal
government
will
publish
the
agreed-upon
prices
for
those
medications,
which
will
go
into
effect
in
2026. 

It’s
too
early
to
know
how
much
Medicare
will
be
able
to
negotiate
down
prices. 

But
some
experts
said
lower
prices
in
2026
may
have

less
of
an
effect
on
drugs
already
expected
to
see
revenue
decline
as
patents
expire
around
the
same
time.
For
example,
Stelara
will
lose
exclusivity
in
the
U.S.
in
2025. 

It’s
a
slightly
different
story
for
drugs
that
will
face

generic
competition
after
2026.
Perrone
said
a
lower
negotiated
price
on
a
drug
will
result
in
companies
losing
revenue
even
before
the
patents
expire. 

Still,
he
said
the
bigger
threat
to
revenue
for
drugs
–
regardless
of
when
they
lose
exclusivity
–
is
competitors
entering
the
market,
not
a
new
negotiated
price
with
Medicare.