Introduction
The pharmaceutical industry is approaching one of its most challenging periods. Over the next five years, a wave of blockbuster drugs, many of which currently generate billions in annual revenue, are going to lose their patent protection, leading to an opening in the market for cheaper substitutes to quickly gain market share.
This “patent cliff” will result in key drugs like Merck’s Keytruda, Bristol Myers Squibb and Pfizer’s Eliquis, and Astra Zeneca’s Farxiga all expiring before the end of the decade, accounting for a loss of potentially up to $200bn in revenue.
Faced with this looming crisis, Big Pharma companies are turning to aggressive M&A, acquiring smaller biotech firms to help replenish their drug pipelines. These companies are also increasingly looking towards partnerships in China to gain access to innovative therapies and lower-cost development capabilities.
Recent Patent Expirations
Patent cliffs are not extraordinary occurrences; with loss of exclusivity common, for instance, as recent as 2024, the Big Pharma industry experienced similar disruption. According to William Blair, in 2024, patent losses accounted for a 30% decline in collective revenues from Bristol Myers Squibb [NYSE: BMY], Pfizer [NYSE: PFE], AstraZeneca [LSE: AZN], Novartis [NYSE: NVS], and Regeneron [NASDAQ: REGN]. AbbVie [NYSE: ABBV] is a critical case study illustrating the detrimental impact of losing exclusivity of a blockbuster drug on revenues, when it accounts for a significant percentage.
In 2023, AbbVie lost market exclusivity of Humira, its best-selling anti-inflammatory drug. In 2022, Humira contributed net revenues of $18.6bn, approximately 32% of AbbVie’s overall revenue. Given its significance, after Humira’s patent expiration, AbbVie’s total sales plummeted by 32% in 2023. This is due to competition from nine cheaper biosimilars, which launched and eroded 4% of AbbVie’s share of the Humira market.
Since AbbVie has struggled to recover its former standing, with revenues still well below the peak of $21.2bn sales in 2022. It is a stark illustration of the fundamental importance of patents for a major pharmaceutical company’s financial performance.
Future Patent Expirations and their Impact
The 2025-2028 period looms for Big Pharma, characterised by a wave of steep patent cliffs. Most notably, Merck’s [NYSE: MRK] Keytruda patent is set to expire in 2028, allowing rivals to sell generics. Keytruda has dominated headlines as one of the world’s best-selling cancer medicines and has earned approximately $30bn per year since its launch in 2014. The consequence is a huge revenue pit, which one drug will not be sufficient to fix, such that Merck prepares to launch more than 20 products in the next five years. Investor prospects reflect this pessimistic outlook, illustrated by Merck’s shares, which have fallen by 35% over the past 12 months.
However, Merck is not alone in revenue losses; the top 20 Big Pharma companies risk losing patents on drugs worth $180bn in 2027 and 2028, almost 12% of the global market. AstraZeneca, for instance, will lose Farxiga protections later this year, which earned it $7.7bn in 2024. Furthermore, Bristol Myers Squibb and Pfizer’s Eliquis, an anticoagulant that earned $13bn last year and grew 10% YoY, expires in 2026.
BMS and Merck are the companies forecasted to experience the heaviest of revenue blows, having lost exclusivity of their “blockbuster” drugs. Whereas other Big Pharma companies are in relatively stable positions, given that less sizeable assets are reaching their expirations. For instance, according to Morgan Stanley metrics, the industry average of revenue exposure to the patent cliffs through to 2030 is 38%, greater than AbbVie (29%), Eli Lilly [NYSE: LLY] (31%), and Pfizer (31%).
The overall impact of patent cliff depresses revenue, which will inevitably lead to “gap-filling,” evidenced by M&A activity seeking novel drugs or alternatively significant cost-cutting. There is an additional impact on R&D. The patent cliff will put pressure on margins, essential for funding costly R&D; the top 20 Big Pharma companies have each invested an annual average of $5.1bn over the last 20 years. If unable to recover revenues, it is likely that the Big Pharma industry will witness a fall in innovation, a key driver of the industry.
How is Big Pharma looking to resolve this Issue?
With internal R&D pipelines often unable to replace blockbuster revenues quickly enough, to offset the lost revenues from patent expirations, pharmaceutical companies are looking towards M&A, specifically acquiring smaller, early-stage biotech companies with promising drugs in oncology, rare diseases, and gene therapy.
Merck’s recent acquisition of Verona Pharma, a company specialising in developing therapies for respiratory diseases, for $10bn is a key example of how the company is attempting to diversify its portfolio beyond oncology and reduce its dependence on Keytruda, its top-selling cancer drug that dominates the lung cancer treatment market.
Other notable transactions include Bristol Myer Squibb’s $14bn acquisition of Karuna Therapeutics, a promising neuropsychiatric treatment that targets schizophrenia and Alzheimer-related psychosis, which will help offset revenue losses from Eliquis’ expiration and Pfizer’s $43bn deal for Seagen, a leading oncology drug known for its antibody drug conjugate platform which will provide a stable source of revenue for Pfizer as it struggles with the expiration of multiple of its key assets.
This deal flow shows no signs of slowing with a number of acquisitions still rumoured to happen, including mid-sized biotech companies like Argenx and BioMarin, both with attractive drugs in late-stage trials. Valuations also remain very attractive right now, with the SPDR S&P Biotech ETF [NYSEARCA: XBI] down close to 50% since its pandemic high, making more consolidation and deal flow in the sector highly likely.
Trend towards Big Pharma investing in Chinese products
Another way in which Western pharmaceutical giants are trying to reduce the impact of the impeding “patent cliffs” is through signing multibillion-dollar deals with Chinese biotech firms that employ artificial intelligence, signaling growing confidence in China’s ability to deliver faster and cheaper innovative drugs. The total deal value of innovator drug licensing agreements involving Chinese biopharma licensors has surged 66%, from $16.6bn in 2023 to $41.5bn in 2024, reaching a five-year high, according to GlobalData’s Pharma Intelligence Center Deals Database. This surge reflects not only China’s transformation from a generic drug manufacturer to a hub for novel discovery, but also Big Pharma’s urgent search for external innovation as the looming patent cliff threatens to wipe out tens of billions of dollars in U.S. and European revenues over the next five years.
Increased Chinese government investments in biopharma innovation, faster and more affordable clinical trials, and improved drug quality all make licensing from China more efficient and cost-effective. The companies often buy ex-China rights to early-stage innovative medicines and then conduct the later-stage trials themselves, so they can provide global data to Western regulators. So far this year, there have been licensing deals between Chinese companies and US and European partners worth up to $35bn, according to data from EY. US licensing of innovator drug candidates from Chinese biopharma companies has grown since 2020, with total deal value for these agreements surging 280%, up from $15.7bn in 2023 to $21.3bn in 2024. The top three therapy areas involving innovator drug licensing were oncology, immunology, and metabolic disorders in 2024 (totaling $22.2bn), according to GlobalData’s Pharma Intelligence Center Deals Database, but also obesity/GLP-1 and cardiovascular disorders are Big Pharma hot spots in China.
Concrete deals underscore the momentum. With U.S. and European blockbusters like Keytruda and Eliquis facing imminent expirations, Big Pharma is scouring China not only for cheaper R&D but also as a lifeline to replenish their pipelines. The Chinese biotech sector has a slew of advantages driving its success with Western drugmakers. Recently, AI drug discovery was named a formal priority in China’s Five-Year Plan for 2025, leading local governments in pharmaceutical hubs like Shanghai to inject more funding into biotech ventures. China also benefits from a deep bench of affordable scientific talent: more than half of biotech startup founders are elite academics who transitioned to the private sector from university labs. For Big Pharma, licensing deals in China typically require smaller upfront costs than Western deals, where much of the price is dependent on a drug reaching certain milestones, such as trials and approvals.
In a deal valued at up to $3.28bn, Merck [NYSE: MRK] licensed LM-299, a Phase II PD-1/VEGF bispecific antibody, from LaNova Medicines in December 2024, expanding its oncology pipeline. In January 2024, Novartis
[SIX: NOVN] signed a $4.35bn deal with Shanghai Argo Biopharmaceutical, securing an exclusive licence outside Greater China for a Phase I/IIa cardiovascular asset and a global licence for another Phase I asset, with options for two more. British drugmaker AstraZeneca [LSE: AZN] followed suit in June 2025 with a $5bn agreement with CSPC Pharmaceutical Group [HKEX: 1093], which gave it access to the latter’s AI platform and a portfolio of preclinical cancer drugs. Meanwhile, Pfizer [NYSE: PFE] and XtalPi [HKEX: 2228] extended their cooperation, co-developing a quantum physics-based, AI-powered drug discovery platform. The deal followed XtalPi’s $250m agreement with Eli Lilly [NYSE: LLY] in 2023, and a new partnership with U.S. drugmaker DoveTree, potentially worth over $10bn.
These collaborations underscore China’s shift from being a typical drug producer to becoming a hub for innovative drug research. Since 2018, both local startups and established pharmaceutical firms have increased their investments in cutting-edge research, resulting in a recent surge in global licensing agreements. In the first quarter of 2025 alone, Chinese companies made up 32% of the total value of global biotech licensing deals, up from 21% in 2023 and 2024, according to Jefferies. However, US biopharma firms may face restrictions on acquiring Chinese drug candidates if drug licensing is included in the America First investment policy, which could slow down innovation in US pipelines. Meanwhile, rising trade barriers, such as a 20% tariff on Chinese goods and a potential 25% tariff on pharmaceuticals, might further raise costs, leading to higher drug prices. Although China remains a center for biopharma innovation, changes in regulations could hinder cross-border collaborations and alter how US companies access Chinese drug candidates.
Conclusion
The looming patent cliff represents one of the greatest challenges Big Pharma has faced in decades. As a number of key blockbuster drugs lose their exclusivity before the end of the decade, the industry is likely to face a significant loss in revenue and increased competition from cheaper versions of the drugs.
In response, these pharmaceutical giants have resorted to aggressive M&A, targeting smaller biotech companies with drugs in both early and late stages of development. Big Pharma is also increasingly looking to partnerships with Chinese biotech companies to gain access to an even greater pool of potential drugs.
While this M&A activity will likely help reduce the problem in the short term, the industry’s heavy dependence on a few key therapies is a deeper structural problem. The next five years will test whether Big Pharma is able to evolve from its reliance on a few key patent monopolies towards more diversified portfolios that are instead composed of a greater number of highly specialized treatments that all contribute meaningfully to overall revenue.
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