May 24, 2024


Every pharmaceutical company is constantly searching for its next blockbuster — the billion-dollar drug that dominates a market, brings in hordes of customers, and deposits hefty profits in drugmakers’ bank accounts. But with every blockbuster, too, comes its expiration date.

Pharmaceutical giants including Merck, Bristol Myers Squibb, and AbbVie are set to lose key patents on some of their most lucrative drugs this decade. As the clock counts down to the end of that exclusivity, more affordable generic and biosimilar alternatives are waiting to enter the market — taking a portion of the giants’ blockbuster business, driving prescription prices down, and giving consumers potentially better options.

With competition closing in, these pharmaceutical companies are bracing for impact. But they’re also prepping their own playbooks, healthcare analysts and industry academics say — and looking ahead to both survive business shake-ups and stymy their competitors.

What is a blockbuster drug?

A blockbuster drug is one that generates at least $1 billion in annual revenue — although in more recent years, their potential for profits have climbed far higher. Best-selling drugs like AbbVie’s Humira, for one, have reached annual sales of more $20 billion annually.

“It’s very hard to try to replace that,” said Matt Phipps, a biotech analyst at investment bank William Blair. “The reason these companies became as big as they are is because they found that one drug that really worked and could drive growth to where they are now.”

Many of these blockbusters are known as small-molecule drugs, which make up 90% of all medications sold. Typically, when a small-molecule drug — which has a low molecular weight and is typically taken orally — loses it patent, it can can also lose up 80% of its sales in one year, according to Phipps.

But the upcoming sweep of patent expirations is also set to impact biologic therapies — a class of drugs developed from living materials such as blood, proteins, plants, and microorganisms. These drugs are usually administered through an IV or an injection. Because they’re more complicated to replicate, the pace of their diminishing sales is different than that of small-molecule drugs.

In the case of Humira — a biologic used to treat arthritis and other autoimmune conditions — the medication began facing competition from biosimilar alternatives last year. In 2023, sales of Humira fell fell 32% to $14 billion. More recently, Humira sales continued to fall 9% to $2.3 billion in the three months ending March 31.

Now pharma giants are taking steps now to prepare for similar revenue losses when their patents start to expire in the next few years. But Big Pharma also has a plan in place — and a well-run playbook for delaying or offsetting impending generic competition.

The first play: File more patents

“Even six months of a $10 billion drug is worth a hell of a lot more than the first six months of a new therapy that’s launching,” Phipps said. “Step one is always try to maximize what you have.”

Because drugs are patented years before they get regulatory approval and hit the market, pharmaceutical companies try to extend their exclusivity rights as much as possible. Drug companies do this by filing not only patents on their medications, but also on the manufacturing process, and even how a drug is administered. All those patents add up — and can delay generic versions and biosimilars from entering the market.

But recently, this strategy has come under increasing regulatory scrutiny. “I don’t know if we’ll see quite as much of that [in the future] as we had in the past 10 years,” Phipps said. In April, the U.S. Federal Trade Commission (FTC) for the second time challenged what it called “junk” patents, or improper patent listings, in the Food and Drug Administration’s Orange Book — the official list of FDA-approved drugs.

Melissa Wasserman, a professor at the University of Texas, Austin who researches drug patent law, said this is positive development. “Those patents that are listed in the Orange Book can have a blocking effect,” Wasserman said. “You, as a generic, can’t come on until you basically deal with every patent that’s listed in the Orange Book for that drug.”

Another patenting strategy the companies deploy: Combine drugs, then patent those new formulations. In one case, Bristol Myers Squibb is losing several key patents in 2028, including its best-selling Opdivo. In 2023, the melanoma-fighting medication alone accounted for 20% of the company’s $45 billion in annual revenue.

In 2022, the company launched Opdualag, a combination of Opdivo with the antibody relatlimab-rmbw, after the combined drug was found to have increased efficacy for treating melanoma. It was “purely a patent extension technique,” Phipps said, although the combined medication does make it a bit easier to administer to patients. But sales of Opdualag skyrocketed 72% year-over-year in the first quarter of 2024, reaching $206 million.

The second play: Offset losses with newer drugs

“Eventually, all your patents run out, and generic competition enters,” said Mike Perrone, a biotech specialist at healthcare management consulting firm Baird. What pharmaceutical companies turn to next, he added, involves relying on their internal pipelines.

After exhausting their options with patents, pharmaceutical companies increase investment in their new and upcoming drugs to offset declining sales. But the timing has to be right, given it takes a while for a new drug to reach blockbuster-status revenue.

AbbVie, the maker of the world’s once best-selling drug Humira, is a good example of this being pulled off properly. When the pharma giant lost exclusive rights to Humira last year, sales of the drug fell 32%. But by preparing and launching new potential blockbusters a few years before the patent’s expiration, the company has been able to offset Humira’s losses.

AbbVie’s Skyrizi, a treatment for plaque psoriasis launched in 2019, saw its sales rise 48% year over year to $2 billion in the first quarter of 2024. Sales of Rinqov, a treatment for moderate to severe rheumatoid arthritis that also debuted in 2019, soared 59% to $1.1 billion.

Meanwhile, Merck, the maker of Keytruda — which took the title of the world’s best-selling drug from Humira last year with $25 billion in sales — is now deploying a similar strategy. The U.S. FDA first approved Keytruda in 2014 to treat melanoma. Since then, it’s received approval to treat several types of cancers, including lung cancer and carcinoma. In the first quarter of 2024, Keytruda accounted for nearly 44% of Merck’s $15.8 billion in total sales.

With Merck’s patent set to expire in 2028, it’s perhaps no coincidence that this year the company is launching Winrevair, a drug for adults who have high blood pressure in the arteries of the lungs. About 1% of the global population has the condition.

One more play: Snap up smaller companies and outsource

In one last strategic move, pharmaceutical companies also acquire smaller biotech startups to absorb their drug pipelines. In effect, the move allows them to outsource drug research and development — reducing their own financial risk as blockbuster revenue streams dry up.

“[T]he strategy over the past few years had been to buy things that had already been approved and were on the market so you don’t take any risk,” Baird’s Perrone said. But companies have become more aggressive as of late, he added — and have started to acquire startups based just on clinical trial results.

Take, for example, Bristol-Myers Squibb, which is set to lose patents for three medications this decade: Eliquis, Revlimid, and Opdivo. Collectively, these drugs accounted for 62% of the company’s total first-quarter sales of $11.9 billion this year. Perhaps it’s no surprise that in April, during the company’s quarterly earnings report, BMS also touted several of its recent acquisitions: Karuna Therapeutics, RayzeBio, Mirati Therapeutics, and an exclusive license agreement with SystImmune.

In another case, Merck — facing the expiration of Keytruda’s patent in four years — highlighted last month how it’s expanding its pipeline and portfolio of drugs with the acquisition of Harpoon Therapeutics.

Ultimately, pharmaceutical giants have had a long time to prepare their plays for expiring blockbusters. “This has always been part of the ecosystem in the biotech world,” Phipps said. “You never have a true long-term outlook for something. You always have to be innovating.” In other words, it’s business as usual.



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