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With Big Pharma $380B deal-making firepower, Morgan Stanley cites a favorable backdrop for biopharma M&A as key drugs in their portfolios face patent cliffs, risking as much as $180B in revenue.
In a research note this week, Morgan Stanley analysts led by Terence Flynn listed large-cap drugmakers with the highest exposure to patent losses this decade.
The list based on 2024 revenue projections for products losing exclusivity indicates that Big Pharma risks losing an estimated $183.5B in revenue to patent cliffs through 2030 as low-cost generics and biosimilars enter the markets.
As a percentage of revenue, Amgen (NASDAQ:AMGN) headed the list with its products at risk, contributing 67% of its estimated 2024 revenue compared to the industry average of 38%.
Bristol Myers (NYSE:BMY), Merck (NYSE:MRK), and Biogen (NASDAQ:BIIB) also had above-average risk, with their at-risk products making up 63%, 56%, and 40% of 2024 revenue, respectively.
Vertex Pharma (VRTX) had the lowest exposure with 6%, while Gilead (GILD), AbbVie (ABBV), Eli Lilly (LLY), and Johnson & Johnson (JNJ) indicated 24%, 29%, 31%, and 33% at-risk revenue, respectively.
Regeneron (REGN) and Pfizer (PFE) had an intermediate risk, with their products facing LOEs expected to make up 35% and 33% of their 2024 revenue, respectively.
Source: Morgan Stanley
In addition to LOEs, Morgan Stanley cited the industry’s M&A firepower as another reason for its bullish stance on deal-making. “Given the magnitude of the upcoming LOEs and the strength of balance sheets across the industry, we continue to believe the conditions for M&A are favorable,” Flynn and the team wrote.
Based on company financials and data from Visible Alpha and FactSet, the firm said that Big Pharma, led by J&J (JNJ), Merck (MRK), and Novo Nordisk (NVO), is sitting on a total deal-making capacity of ~$383.1B.
As for individual stocks, Morgan Stanley argued that Merck (MRK) is well positioned for deal-making due to its balance sheet strength and LOE risk for its blockbuster cancer therapy Keytruda.
The firm said that oncology and immunology would remain critical areas of focus for deal-making, as 20 out of 34 recent deals, including Pfizer’s (PFE) $43B acquisition of cancer drugmaker Seagen, targeted those therapeutic areas.