The next 12-24 months should be interesting in the biotech/pharmaceutical arena. We have the large pharmaceutical companies (such as Abbott, AstraZeneca, Bristoll-Meyers Squibb, Eli Lilly, GlaxoSmithKline, J&J, Merck, Novartis, Pfizer, Roche, Sanofi, and Schering-Plough) sitting on a lot of cash. Yet, despite all that money in the bank, the number of high profile drugs coming off patent soon from large pharma is substantial. According to Merck’s industry numbers, drugs coming off U.S. patent in 2011 alone will cause a loss of over $51.1 billion in revenues in 2011. The following year does not look much better with another $42.9 billion in less revenue from drugs coming off patent in 2012. Looked at another way, 85% of the top large pharma products will lose U.S. patent protection by 2012.
So where will large pharma go to replace these lost revenue streams? While acquisitions of large biotech companies (market caps between $5-50 billion) will likely be a partial solution, it is far from a complete solution.
Where will the Next Blockbuster Drugs Come From?
One set of clues to the answer may be to examine where the large blockbuster drugs came from in the last decade. Not surprising to many in the industry, the overwhelming majority of top-selling drugs were developed by companies that were different than the companies commercializing them. According to Merck’s figures of the blockbuster drugs from the last decade,
- 60% of innovator small molecules,
- 82% of innovator biologics,
- 65% of follow on small molecules, and
- 62% of follow on biologics
were originated in a company other than the company commercializing it. This trend seems like it will continue. With the various numbers I have seen, the revenues from the pipeline of new drugs from large pharma is expected to be less than one third of the anticipated revenues from drugs coming off patent.
Cash Strapped Biotech
On the other end of the spectrum, we have a number of smaller biotech companies that are very short on cash and have a number of products in the pipeline. In the Spring of this year, it was noted by many sources that more than 1/3 of the public biotech companies had less than six months of cash left to operate. For privately held biotech companies, the news is similarly bleak with the tight venture capital markets. While the number of small deals, PIPEs, and mergers and acquisitions of biotech firms have picked up some in the last month or two, absent an unanticipated opening of the public markets and significant increases in venture capital or PIPEs, the day of reckoning for many biotechs is coming soon.
Unless of course, large pharma goes on an investment or buying spree in an effort to make up their anticipated lost revenues.