Investors Need Not Be Alarmed by Drug Patent Expirations

Top pharmas have new products and plenty of cash for deals

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Jun 28, 2022
Summary
  • Even with the loss of exclusivity on its mega-blockbuster, AbbVie in good shape.
  • Biggest challenges are facing Bristol-Myers, Pfizer and Merck.
  • Companies have a combined $1.7 trillion available for M&A.
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Investors who are sweating the loss of patent protection for some of Big Pharma’s top-selling drugs should relax.

Although many of the drugmakers will take a hit to revenues when their patents expire, analysts at Moody's say “high cash levels, strong cash flow and moderate debt,” allow many of the companies to make up for any shortfalls with acquisitions and other deals. They will have plenty of ammunition to make bold moves, given the combined cash holdings of companies Moody’s looked at totaled $220 billion at the beginning of 2022, giving them "firepower" of nearly $2 trillion.

Moody’s analyzed the top 19 companies in the industry by their exposure to losing patent protection from 2026 to 2029 and their ability to pivot to mergers and acquisitions to make up revenue deficits.

Of the companies losing exclusivity on key drugs, the three facing the biggest challenges are Bristol-Myers Squibb Co. (

BMY, Financial), Pfizer Inc. (PFE, Financial) and Merck & Co. Inc. (MRK, Financial), and even that trio is in good shape owing to their financial flexibility to pull off deals to compensate for any losses.

Bristol already expanded its offerings with the $74 billion acquisition of Celgene, but the company had cash of more than $17 billion at the beginning of the year. Pfizer has already made two big buys, which were Arena for $6.7 billion and Biohaven for $11.6 billion. It, too, has plenty left in the coffers with $31.6 billion, so look for more activity.

Merck is not quite as vulnerable as the others because its key product, Keytruda, is a biologic and, as such, is more difficult to copy. Patent protection is also due to expire for two of its best-selling oral drugs, Lynparrza and Lenvima. To help fill the gap, Merck spent $11.5 billion to add Acceleron to the fold and reportedly has its eyes on Seagen Inc. (

SGEN, Financial).

Those companies that investors should have the least concern about are AbbVie Inc. (

ABBV, Financial) and Sanofi SA (SNY, Financial), according to Moody’s. The former is a bit of a surprise given its mega-blockbuster treatment Humira, the top-selling drug in history, will start facing copycats as soon as next year. Fortunately, AbbVie has the immunology duo, Skyrizi and Rinvoq, waiting in the wings. And those two will enjoy patent protection into the 2030s.

As for Sanofi, the company’s two hemophilia drugs lose exclusivity late in the decade, but competitors are likely to have a tough time producing biological copies.

AstraZeneca PLC (

AZN, Financial) will lose exclusivity on three of its blockbusters, but a diverse revenue base should help the British drugmaker cover any losses. What is more, a successor medication to top-selling Soliris appears able to step into the breach.

Among the other large pharmas, Johnson & Johnson (

JNJ, Financial) and Novartis AG (NVS, Financial) have plenty of cash to do deals. But for the former, litigation over talc and opioids could put a damper on its deal-making ability. Novartis has a tidy sum in the bank with more than $28 billion, a substantial part of it coming from the sale of its stake in Roche Holding AG (RHHBY, Financial), which will be funneled to shareholders as part of a buyback program.

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