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Big Pharma’s patent cliff is fast approaching

Aprice tag For most acquisitions of small and emerging companies, $10.8 billion looks like a lot of money.But for Merck this is called mass spectrometry Outside the U.S., it spent relatively little money acquiring California-based biotech company Prometheus Biosciences. In the world of big pharma, such deals have the potential to yield big payoffs.

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While Prometheus isn’t profitable to speak of and has no approved drugs on its roster, the big prize for Merck is pula023, a drug nearing late-stage clinical trials being developed by Prometheus for the treatment of ulcerative colitis, Crohn’s disease and other serious autoimmune diseases. Right now, Prometheus is burning through cash at a fast-growing rate. Merck’s decision to buy it is a bet on what’s next.

The U.S. giant is desperate for promising new treatments to supplement its drug pipeline. Like other pharmaceutical companies, it is facing a precipice as patents on money-making treatments come to an end. Merck’s cancer immunotherapy drug Keytruda, which accounts for more than a third of its sales in 2022, will face competition from cheaper generics once key patents expire in the U.S. in 2028 and in Europe two years later .

This problem pervades the entire industry. Patents on more than 190 drugs are set to expire before the end of the decade, putting sales worth as much as $236 billion at risk of a sharp decline. Few were spared from the onslaught that was coming.The world’s top 10 drugmakers, including Merck and U.S. rival Pfizer, are said to lose about 46% of their revenue, taking their combined revenue to more than $500 billion by 2021 zs, a consulting firm. At least half of the annual revenues of five of these companies are at risk.

Pharma bosses are spending huge sums to close the gap. The industry has long used dealmaking as a way to compensate for potential lost revenue from patent expirations. Despite the lack of mergers and acquisitions in other industries, drugmakers are driving a wave of consolidation across the industry. pwCA consultancy estimated that acquisitions in the pharmaceutical and life sciences industry could be worth $275 billion by 2023, up nearly three-quarters from last year.

So far, buyers are willing to pay a huge premium. Merck paid $200 a share for Prometheus, a premium of 75% over the company’s closing price before the offer was made. In another acquisition announced in March, Pfizer will pay $43 billion for loss-making cancer biotech Seagen. The industry’s most lucrative deal in three years beat Seagen’s stock price by 33%.And on April 18 gskAnother pharmaceutical giant agreed to buy Canadian biotech Bellus Health, a promising chronic cough treatment, for about double the company’s pre-deal value.

The benefits of paying huge sums for drugs that are close to regulatory approval are clear. It can take more than a decade to bring a new drug to market, and many treatments have failed along the way. With a healthy $1.4 trillion in cash reserves waiting to be deployed, Big Pharma has turned to acquisitions to bail out.

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