The New York Stock Exchange welcomes Johnson & Johnson (NYSE: JNJ) to the podium.
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Certain drugmakers appear well-prepared to offset some losses from upcoming patent cliffs by expanding their drug pipelines and making inky acquisitions or partnerships with other companies. said some Wall Street analysts.
Patent cliffs are an unavoidable problem for pharmaceutical companies. They must replace older, high-selling drugs with new ones that they hope will not only maintain but also increase their sales.
Losing exclusive rights to a medicine can impact companies differently depending on how much revenue they generate from the product or what type of treatment it is. Some drugs whose patents are expiring will also be subject to the Biden administration's Medicare price negotiations, a policy that could further threaten companies' revenues.
EY estimates that the top 20 biopharma companies will have $180 billion in revenue at risk from patent expirations by 2028.
“Right now it varies from company to company, and I think that in '25 and '30 there will be a number of products that will be big growth drivers for large biopharma companies… but overall there are a lot of companies that have done this “To plug revenue holes,” Matt Phipps, an analyst at William Blair & Company, told CNBC.
Some top drugs will lose their exclusivity
Keytruda from Merck is an immunotherapy used to treat melanoma, head and neck cancer, lung cancer, and other certain types of cancer.
- Major patent expirations: 2028
- 2022 sales: $20.94 billion
- Share of the company's total sales in 2022: around 36%
- Estimated future sales: According to Guggenheim estimates, it will be $14.9 billion in 2030.
Eliquis by Bristol Myers Squibb is a blood thinner used to prevent blood clotting and reduce the risk of stroke.
- Major patent expirations: 2026 to 2028
- 2022 sales: $11.79 billion
- Share of the company's total sales in 2022: Around 25%
- Estimated future revenue: $478 million in 2032, according to Leerink Partners estimates.
Opdivo by Bristol Myers Squibb is an immunotherapy used to treat types of cancer, including melanoma and lung cancer.
- Major patent expirations: 2028
- 2022 sales: $8.25 billion
- Share of total sales in 2022: Almost 18%
- Estimated future revenue: $3.18 billion in 2032, according to Leerink Partners estimates.
Stelara from Johnson & Johnson is an immunosuppressive medication used to reduce inflammation and treat various conditions, including plaque psoriasis and psoriatic arthritis.
- Key patent expirations: 2024 in Europe, 2025 in the US (Stelara's patents began expiring in the US last year, but the company entered into agreements with competitors to delay the launch of copycat drugs).
- 2022 sales: $10.86 billion
- Share of total sales in 2022: Around 12%
- Estimated future revenue: $2.63 billion in 2028, according to FactSet estimates.
Patent cliffs can vary depending on whether the product is a small molecule drug—that is, made of low molecular weight chemicals—or a biologic drug, or a drug derived from living sources such as animals or humans .
Many of the biggest drugs facing patent expiration are biologics, including Merck's Keytruda, J&J's Stelara and Bristol Myers Squibb's Opdivo. These drugs will inevitably bring in less revenue, but it may take time for so-called biosimilars to threaten their dominance.
Investors will be informed about Merck and Bristol Myers Squibb's plans for the coming years when they report their results on Thursday and Friday, respectively.
Phipps said biosimilars have historically “struggled to gain market share against their branded counterparts.” That's different from generics, which are cheaper copycats of small-molecule drugs like Bristol Myers Squibb's Eliquis.
The difference is that many biosimilars are not identical copies of brand-name biological drugs, whereas generics are.
This means that biosimilars are not interchangeable: pharmacists cannot directly replace a biosimilar with a branded biologic when writing a prescription. Not all patients respond to a biosimilar in the same way as they would to a biologic, which is why some physicians are reluctant to switch patients to biosimilars.
According to Phipps, research and development costs for biosimilars are also much higher and manufacturing is more complex than for generics, making biosimilar manufacturers less willing to sell them to branded products at significant discounts.
Humira, the injectable rheumatoid arthritis treatment, is pictured at a pharmacy in Cambridge, Massachusetts.
JB Reed | Bloomberg | Getty Images
One example is AbbVie's Humira, a biologic that helps treat a range of inflammatory diseases. Several biosimilars of Humira first hit the market last year, but the drug has so far lost only 2% of its market share to these copycats, according to a report released this month by Samsung's biopharmaceutical subsidiary Bioepis.
That's partly because the drugmaker has offered discounts on Humira to pharmacy benefit managers. The lower price has resulted in lost sales, but also helps the drug remain competitive.
“What is really being impacted is not the market volume, but the price,” said Christopher Raymond, senior analyst at Piper Sandler. He added that Humira is a highly profitable drug, so AbbVie can set a lower price and “still maintain a very, very good margin.”
Still, AbbVie expects Humira sales fell 35% last year compared to 2022, when the drug brought in more than $21 billion.
Raymond forecasts a 33% decline in 2023 and an identical decline in 2024, which would reduce 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 biopharmaceutical industry sales to remain “virtually stable” through 2030, analyst Chris Schott said in a note December.
Take Merck: Schott wrote in a January note that the company has made “significant progress in addressing post-Keytruda patent expiration,” adding that the company’s profile “looks increasingly attractive beyond 2028.”
During the JPMorgan Health Care Conference earlier this month, Merck CEO Robert Davis said the company expects to generate more than $20 billion in cancer drug sales by the mid-2030s, which is double the forecast that company had submitted in the same period last year.
Those improved prospects now include three antibody-drug conjugates – which target cancer cells and minimize damage to healthy cells – from the licensing agreement Merck signed with Daiichi Sankyo in October. This includes Merck and Moderna's personalized cancer vaccine, which has shown promising mid-stage data when combined with Keytruda to treat the deadliest form of skin cancer.
The company also raised its cardiometabolic drug sales forecast to about $15 billion by the mid-2030s, up from a previous forecast of $10 billion.
Davis noted that Merck views Keytruda's patent expiration as a “hill, not a cliff,” and is focused on making “the decline as small as possible and the return to growth as quick as possible.”
Meanwhile, JPMorgan's Schott said Bristol Myers Squibb shares faced a challenging 2023 as new drug launches were “slower than expected.”
But JPMorgan expects these new products, along with the drugmaker's recent acquisitions and growing mid- to late-stage pipeline, will “ultimately position the company for growth” following the upcoming patent expiration. For example, in December Bristol Myers Squibb acquired Karuna Therapeutics, which develops drugs for psychiatric and neurological diseases, for $14 billion.
Meanwhile, Schott said he believes J&J is “well positioned for healthy growth” after the Stelara patent expires. The company expects the company's pharmaceutical business to achieve mid-single-digit sales growth through 2030, he wrote in a December note.
J&J's medical device business is also growing as a share of the company's revenue, which could help the company offset the Stelara patent cliff, said CFRA analyst Sel Hardy. The company generated about $30 billion of J&J's total revenue of $85 billion in 2023.
In addition to internal developments, companies will likely look for opportunities to acquire additional drugs, particularly those in late-stage development that are nearing market launch, said Arda Ural, EY's health sciences and wellness leader in the Americas.
The biotech and pharmaceutical industries are also starting the year with about $1.4 trillion available for business, he added.
In order to avoid losing sales, pharmaceutical companies also try to delay competition or expand patent protection for drugs.
Merck is testing a new, more convenient version of Keytruda that can be injected under the skin instead of an intravenous infusion. If approved, this new form could earn the company a separate patent and extend Keytruda's market exclusivity for several years.
Bristol Myers Squibb is also testing a new form of Opdivo, which is currently being administered into a patient's vein. A version that is injected under the skin showed promising results in a late-stage trial in October and could also lead to expanded market exclusivity.
Boxes of Bristol Myers' Opdivo are on display at the University of Utah Huntsman Cancer Institute in Salt Lake City, Utah, on July 22, 2022.
George Frey | Portal
J&J's strategy with Stelara is slightly different.
In 2022, J&J sued Amgen over its plan to market a biosimilar to Stelara, saying it would infringe two patents on the drug. J&J confidentially settled that lawsuit in May but will allow Amgen to sell its Stelara biosimilar no later than 2025.
A month later, J&J reached similar settlements with Alvotech and Teva Pharmaceuticals, which also plan to launch a biosimilar of Stelara.
“Pharma is doing what it can to make sure they get the most out of these drugs before they become widely available,” Mike Perrone, Baird's biotech specialist, told CNBC. But he noted, “While you can build on it for a few years and increase sales, there's only so much time you can add.”
Price negotiations for Medicare drugs under the Inflation Reduction Act pose an additional threat to companies, but the policy's impact on revenue can vary depending on when a drug loses exclusivity.
Medicare will begin price negotiations this year for the first round of 10 prescription drugs. Discussions include Stelara and Eliquis, as well as several other treatments whose patents are expiring.
By autumn, the federal government will publish the agreed prices for these drugs, which will come into force from 2026.
It's too early to tell how much Medicare will be able to lower prices.
Activists protest the cost of prescription drugs in front of the US Department of Health and Human Services (HHS) building on October 6, 2022 in Washington, DC.
Anna Moneymaker | Getty Images
But some experts said lower prices in 2026 may have less of an impact on drugs that are already expected to see revenue fall as patents expire around the same time. For example, Stelara will lose its exclusivity in the US in 2025.
The situation is somewhat different for medicines that will face competition from generics after 2021. Perrone said a lower negotiated price for a drug would cause companies to lose revenue sooner, before patents expire.
Still, he said the bigger threat to drug revenues — regardless of when they lose exclusivity — is the entry of competitors, not a renegotiated price with Medicare.