Hot topic: A patently obvious opportunity?

The patent cliff is looming and Big Pharma firms are concerned.

Hungry to fill revenues holes which will soon start to open up, they are on the lookout for tasty biotechs with oven-ready assets.

Last week, Merck & Co pounced – with the purchase of our client London-based Verona Pharma for a cool $10 billion.

Steve Bates OBE, CEO of the UK BioIndustry Association (BIA), aptly described the sale as “an incredible success story” for the UK – although he also lamented the fact that Verona never listed on UK markets, preferring NASDAQ to go public in 2017.

The purchase gives Merck & Co access to Verona’s groundbreaking chronic obstructive pulmonary disorder (COPD) drug Ohtuvayre, which was approved by the US’s Food and Drugs Administration (FDA) last year. It is expected to deliver peak sales of almost $4 billion a year by the mid-2030s.

Merck has a particularly big hole to fill, thanks in part to the 2028 expiry of the patent on Keytruda, its blockbuster cancer immunotherapy drug. The anti-PD1 currently delivers revenue worth a huge $29.5 billion a year – making it the world’s biggest-selling drug of 2024.

Keytruda might be “the big one” but there are plenty of other drugs whose patents are due to expire soon. Bristol Myers Squibb (BMS) also faces issues with patents expiring on its rival immunotherapy Opdivo in 2028 and its anti-coagulant Eliquis, which has various patients expiring in different geographies between 2026 and 2028.

According to figures compiled by Evaluate Pharma, drugs worth $180 billion a year in revenue will go off patent in 2027 and 2028, equivalent to 12% of the global market in branded medicines.

There will be no overnight switch to cheaper generics – or, increasingly, biosimilars – so these branded drugs will in all likelihood have “long sale tails”. But tails they will be.

Merck dropping $10 billion for Verona – it’s biggest deal in two years – needs to be seen in this context.

But, just two years ago, Verona was worth “only” $1.3 billion. While a buyer back then would have carried much more risk in terms of clinical trials and regulatory approval, it does beg an important question: Is Big Pharma too focused on gobbling up biotechs with pre-approved or late-stage assets, when there are lots of companies with drugs at an earlier stage of clinical development which are suffering from depressed valuations?

In their search to fill imminent revenue holes, are they missing out on the opportunity to bag biotech bargains that could deliver big in the 2030s and beyond?