Pharma is constantly preparing for patent expirations with internal innovation, partnerships and M&A. Smart companies have learned from previous patent cliffs to preempt sales dips when their blockbuster products are set to lose protection. Nevertheless, patent cliffs expose companies to a sudden drop in revenue, which affects their credit ratings from companies like Moody’s.
With several of the biggest pharma companies facing patent cliffs in the latter part of this decade, it’s important for the industry to understand the exposure, what their portfolios look like, contingency plans and any cards they could have up their sleeves.
In a recent report, Moody’s looked at how patent expirations between 2026 and 2029 would affect some of the largest pharma companies through a qualitative assessment. In particular, Moody’s focused on the three with the greatest exposure: Merck, Pfizer and Bristol Myers Squibb.
Merck: Biosimilar competition
According to Moody’s, one of the most exposed companies is Merck, primarily because of its mega-blockbuster Keytruda, which will face biosimilar competition in the U.S. starting in 2028, and in Europe in 2030.
“If you exclude Merck’s COVID-19 treatment Lagevrio, Keytruda represents almost 40% of Merck’s revenue today,” says Michael Levesque, senior vice president at Moody’s. “Without large acquisitions, or something absolutely transformative from their own pipeline, Keytruda’s loss of patent does expose the company.”
Well aware that this cliff is looming, Merck has several key contingency plans it’s rolling out. One strategy is to develop a combination therapy with Keytruda and other oncology drugs in Merck’s pipeline.
“Keytruda is such an engine for them, and it's still growing so rapidly, which means there's still so much more to come with that molecule from all the combinations,” Levesque says, adding that, as with other companies, cancer has become the primary focus area simply because the unmet needs are so high. “With Keytruda, Merck fairly rapidly transformed itself into one of the leading oncology companies globally.”
At the same time, Merck has a strong vaccines franchise and continues to have global growth aspirations for its HPV vaccine Gardasil.
Moody’s has rated Merck A1, the agency’s fifth highest rating, with a negative outlook as a result of risks associated with acquisitions. However, Moody’s is confident that Merck’s earnings before interest, taxes, depreciation and amortization (EBITDA) is still growing strongly, which gives them flexibility to continue investing.
Pfizer: M&A capacity and risk
With five of Pfizer’s traditional oral products facing patent expiration in the next six years — Eliquis, an anticoagulant medication, Ibrance to treat breast cancer, Xeljanz for arthritis, Xtandi for prostate cancer, and Vyndaqel for transthyretin amyloid cardiomyopathy — Levesque says the company’s patent cliff exposure is high.
“Excluding Pfizer’s COVID products, these represent about 40% of Pfizer’s revenue,” he says.
However, he notes that Pfizer has been very transparent about its targets, revealing plans to derive $25 billion in risk-adjusted revenue by 2030 from M&A.
“They have been clear with the companies they have acquired so far how much of that target they think each will achieve. With the recent acquisition of ReViral, they expect $1 to $1.5 billion in risk-adjusted revenue by 2030. They’re also in the process of buying Biohaven, and they’ve said that will bring in $6 billion.”
While oncology is a major focus for Pfizer, the company is continuing to invest in its other lines of business, such as internal medicine, as the deal with Biohaven demonstrates.
“With the combination of good cash flow, partly from the sales of the COVID vaccine, we believe Pfizer has appetite and capacity for debt, so there is potential for large deals,” Levesque says.
BMS and others: An inevitable sales drop
For Bristol Myers Squibb, the agency has issued a rating of A2 stable, with the majority of its portfolio subject to erosion between 2026 and 2029.
“The other reason for this rating is that Bristol’s revenue is more concentrated in its top three drugs – Eliquis, Revlimid and Opdivo, which represent 60% of revenue,” Levesque says. “A third factor is that Bristol recently put out peak sales estimates for the key drugs in the pipeline in the billions.”
For its hypertrophic cardiomyopathy drug mavacamten, for example, Bristol expects to achieve sales of $958 million by 2025, if approved for common cardiomyopathy subtype, according to GlobalData.
Bristol Myers has been forthright about a debt-to-EBITDA target of 1.5. This was stated when the company acquired Celgene, which pushed the ratio to around 3 and the company set a target to deleverage to 1.5 by 2023, which was then pushed out to 2024 when Bristol bought MyoKardia. Levesque says a combination of debt maturities and growing EBITDA for the past several years has helped them make significant progress toward that target. At the same time, Bristol Myer’s free cash flow is incredibly strong, at around $10 billion annually, giving them a lot of flexibility for acquisitions.
Regarding other pharma companies, Levesque notes that AbbVie and Sanofi have moderate or limited exposure in the latter part of this decade.
“For AbbVie, the clear exposure is HUMIRA in 2023, but once that’s behind them, the rest of the decade mostly has growth drivers, particularly their new immunology drugs, Skyrizi (for psoriasis) and Rinvoq (for inflammation), which won't face patent expirations until the 2030s,” he says.
Levesque says for all these companies, there will inevitably be years with lower revenue than others, but that isn’t seen as a failure.
“It’s acceptable to have slower years as long as there’s growth on the horizon and confidence in the long term outlook for products in the pipeline,” he notes.