Unlock the Editor’s Digest for free
Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
For drugmakers, dealmaking has become less a question of long-term strategy and more about immediate relief. With the long-looming patent cliff finally arriving, afflicted companies are presenting with sluggish organic sales and an increased desire to buy mature, and pricier, biotechs.
Novartis, which reported earnings on Tuesday, has all the symptoms. The Swiss group’s sales of heart medication Entresto — a drug that recently went off patent — flatlined, after having grown at a 26 per cent year-on-year rate the previous quarter. Novartis shares fell by more than 4 per cent on Tuesday as investors fretted about the impact of generic competition.
It should be no surprise, then, that the group is chasing growth elsewhere. It agreed to make its biggest acquisition in more than a decade on Sunday, buying rare disease biotech Avidity Biosciences for $12bn. That will lift its revenue growth to 6 per cent a year between 2024 and 2029, from its previous forecast of 5 per cent.
This follows the completed $1.4bn purchase of cardiovascular biotech Tourmaline Bio, the acquisition of Anthos Therapeutics, another heart-drug developer, for up to $3.1bn, and a deal worth up to $1.7bn for kidney-disease biotech Regulus Therapeutics. Novartis also entered a collaboration worth up to $5.2bn with China’s Argo Biopharma.
Novartis is not alone in having to manage this malaise. Across the industry, drugs with current sales of $61bn are going to lose exclusivity per year until 2030, Bernstein has found, double the historic level.
For companies on the edge of that cliff, the options are limited. Organic growth from in-house development takes too long to compensate for the immediate losses caused by the patent expiry. So, too, do the smaller, earlier-stage deals that Big Pharma has engaged in over the past few years. In 2024, roughly three-quarters of biotech acquisitions targeted companies in phase 2 or earlier, according to Bernstein research. Those were largely strategic, long-term bets.
That leaves companies facing patent expiries seeking mature biotech bolt-ons, with either late-stage or already approved products. Novartis is far from the only example. In July, Merck — whose blockbuster drug Keytruda will lose exclusivity in the US in 2028 — agreed to buy respiratory drugmaker Verona for $10bn.
The market, of course, can see an M&A wave coming a mile off. Nasdaq’s Biotechnology index, a basket of 225 listed biotechs, has risen by more than a fifth this year, and now trades at almost triple the price-to-earnings multiple it sported in October 2022. For biotechs boasting late-stage assets and clean clinical data, the buyer pool is about to get much deeper and, for deal-hungry pharma, overcoming the patent cliff will get pricier.
gaia.freydefont@ft.com
