There was a quite a bit of discussion on a few biotech forums on HC a few months ago about the exclusivity (and/or patent)cliff. This guy post the following and Linkedin (and heaps of other interesting stuff there and on his website):-
There was a quite a bit of discussion on a few biotech forums on...
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The scale of that problem has never been higher, with >$200B of sales at-risk through 2028
After analyzing the pipelines, management commentary and BD maneuvers of key pharma players, here are some thoughts on how this plays out:
Exhibit 1: Summary of strategy by company
The exposure level of each pharma varies significantly - Merck, Pfizer and BMS are the most exposed, largely driven by their successful oncology & hematology franchises (i.e. Keytruda, Eliquis, etc.). AbbVie has successfully combatted Humira biosimilars via attractive rebates they can offer PBMs.
Exhibit 2: Notable US LOEs through 2028
Half of the >$200B of at-risk revenue is in '27-28, which means now is the time pharma will start angling to replace these via high-conviction R&D & BD efforts
Replacing such a big hole will require big swings. Keep in mind that whatever pharma needs to replace in LOEs is in addition to the standard growth they need to show to justify their valuations.
As we saw with Lilly and Novo's obesity assets this year, projected sales from high-growth novel products will get a premium multiple vs. mature products. Thus, as pharma ages towards big LOEs, their growth mix becomes increasingly unfavorable, and their valuations will compress unless they can point to differentiated new assets that will pick up the slack (& then some).
The larger the peak sales potential of these high-growth assets, the more premium the multiple early on. All of this is why pharma generally doesn't bother with <$1B peak sales products - it doesn't provide enough leverage to move the valuation needle meaningfully (something biotechs looking to be acquired should be conscious of).
Evolving mgmt. commentary shows more willingness for big M&A than just 1-2 years ago. As the biotech bear market continues and 52-week highs are a distant memory, companies that were previously anchored to their pandemic-high valuations have started to reset internally. With that said, early-stage deals will continue to be important, on avg. generating ~60% of core pharma assets
I also looked through the pipelines of these companies to get a sense of what TAs they are focusing on:
Exhibit 3: Pharma clinical pipeline breakdown
Of note, oncology was largely the #1 priority for every company, except Novo. Beyond oncology, immunology & inflammation and cardiovascular/metabolic were the other priorities. This makes sense given the massive TAMs, unmet need and ability to get assets approved across multiple indications.
With the IRA, the "clock" for price negotiation starts at the time of initial launch, so companies are now incentivized to launch in the largest (1st line) setting upfront, as opposed to launching in a late-line setting with a lower bar for success & gradually working upwards. We saw the latter dominant oncology, so it's worth monitoring the impact there on R&D strategy. For now, it doesn’t seem like pharma is shying away.