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Top 10 pharma companies have over $120 billion in cash for mergers and acquisitions

Drug companies like BMS, GSK and Amgen face revenue losses from patent expirations

El laboratorio de BMS.
A BMS lab.

Pharmaceutical giants have accumulated sizable war chests to buy up rivals. Scope Group, a financial ratings firm, reports that the world’s 10 largest pharmas collectively have $120 billion (€111 billion) in cash on their balance sheets. “The pharmaceutical sector will remain one of the few industry sectors where M&A [mergers and acquisitions] remains buoyant despite rising interest rates, but large mergers and cross-border transactions are not likely,” stated a report by Olaf Tölke, Scope’s director of corporate ratings.

“Pharmaceutical companies are flush with cash. The sustained pandemic impact on demand for vaccines, treatments and Covid-related diagnostics, and more indirectly, government recognition of the importance of public health investment, have combined to increase cash inflows, providing them with the means to undertake ambitious acquisitions,” said the Scope report. These large companies include well-known names like Pfizer, MSD (Merck Sharp & Dohme), Johnson & Johnson, Novartis and Roche.

Scope believes medium-sized mergers and acquisitions will emerge in the months ahead, targeting specific therapeutic areas of specialization, such as cardiology, oncology, neurology, and diabetes. Amgen’s acquisition of Horizon for around $40 billion is currently in the works. “We would not be surprised to see transactions of up to $20 billion.”

Companies like these require continuous innovation to replace expiring drug patents and deliver products that serve the medical community and patients alike. When patent exclusivity is lost, drugs face stiff competition from generics and biosimilars, leading to lower sales and prices that ultimately affect the bottom line.

Patent expiration

The expiration of drug patents poses a significant risk to major companies, as highlighted in the Scope report (citing Bloomberg data). Specifically, Bristol-Myers Squibb (BMS) stands to lose 79% of its projected 2025 revenue between 2025 and 2029 due to loss of patent exclusivity. To fill the revenue gap, BMS must focus on developing and launching its own drugs or acquiring new therapies and companies in the years ahead. Among the companies most heavily affected by revenue loss from patent expiration are GSK (56%), Amgen (55%), MSD (49%), Lilly (46%), Johnson & Johnson (46%), and Roche (38%).

Pfizer, the world’s largest pharmaceutical company, faces a 37% revenue loss from patent expiration. The company finds itself in a challenging predicament — the reduced global demand for its Covid-19 vaccine has led to a decline in revenue. To remedy this, Pfizer has signaled its willingness to explore acquisitions. Under the leadership of CEO Albert Bourla, Pfizer is projecting revenue of $67-$71 billion for 2023, a noticeable decline from its record-breaking $100 billion peak in 2022.

In the Scope report, Tölke says large pharmaceutical conglomerates are a thing of the past. Rather, highly capitalized companies are increasingly focused on efficiency, and are spinning off multi-million dollar ancillary businesses. Johnson & Johnson is a prime example of this trend, as it prepares to shed its huge consumer products division in the coming months.

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