Patent Expirations: Impact on Big Pharma's Revenue Streams

Current State of Patent Expirations

Patent expirations are set to impact major pharmaceutical companies significantly. Pfizer's patents in Europe and Japan expire in 2026, with regulatory exclusivity extending to 2029 in Japan. Johnson & Johnson faces a key patent expiration in Europe and the UK in 2024. Bristol-Myers Squibb's Eliquis has already seen generic competition due to patent invalidation. Merck's Januvia and Janumet will maintain market exclusivity in the U.S. until 2026 due to favorable court rulings. Pfizer anticipates a notable revenue impact from patent expirations between 2026 and 2030.

"In major European markets, our patents expire in November of 2026. And in Japan, the patent expires in 2026, but there's regulatory exclusivity through March of 2029 for cardiomyopathy." --- (PFE, earning call, 2024/Q1)

"The latest expiring European composition of matter patent (Supplementary Protection Certificate) expires in 2024 in most European Union Member States and the United Kingdom." --- (JNJ, sec filing, 2024/Q1)

"Excluding foreign exchange impacts, revenues increased by 1%. • Following the May 2021 expiration of regulatory exclusivity for Eliquis in Europe and the court decision in the UK finding the UK apixaban composition of matter patent and related SPC invalid, generic manufacturers have begun marketing generic versions of Eliquis in the UK and in Portugal, and may seek to market generic versions of Eliquis in additional countries in Europe, prior to the expiration of our patents, which has led to additional infringement and invalidity actions involving our Eliquis patents being filed in various countries in Europe." --- (BMY, sec filing, 2024/Q1)

"While the key U.S. patent for Januvia and Janumet claiming the sitagliptin compound expired in January 2023, as a result of favorable court rulings and settlement agreements related to a later expiring patent directed to the specific sitagliptin salt form of the products (see Note 7 to the condensed consolidated financial statements), the Company expects that Januvia and Janumet will not lose market exclusivity in the U.S. until May 2026 and Janumet XR will not lose market exclusivity in the U.S. until July 2026, although a non-automatically substitutable form of sitagliptin that differs from the form in the Company’s sitagliptin products has been approved by the FDA." --- (MRK, sec filing, 2024/Q1)

"We anticipate a more significant impact of reduced revenues from patent expiries in 2026 through 2030 as several of our in-line products experience patent-based expirations." --- (PFE, sec filing, 2024/Q1)

Financial Impact on Revenue Streams

Patent expirations have significantly impacted Big Pharma's revenue streams, with Pfizer and Bristol-Myers Squibb reporting substantial revenue declines due to generic erosion and operational decreases. Changes in royalty payments and cash flows also materially affect financial metrics, further straining revenue streams.

"Although, as I mentioned, this return did not have impact on cash flows, it affected revenues as we had to reverse sales that were recorded previously." --- (PFE, event transcript, 2024/04/25)

"A significant increase or decrease in estimated royalty payments, or a significant shift in the timing of cash flows, will materially impact the sale of future royalties liability, interest expense and the time period for repayment." --- (BMY, press release, 2024/04/25)

"Our First Quarter 2024 Performance Total Revenues –– Total revenues decreased $3.6 billion, or 20%, in the first quarter of 2024 to $14.9 billion from $18.5 billion in the first quarter of 2023, reflecting an operational decrease of $3.5 billion, or 19%, as well as an unfavorable impact of foreign exchange of $107 million, or 1%." --- (PFE, sec filing, 2024/Q1)

"• International revenues decreased 34% during the first quarter of 2024 primarily due to lower demand as a result of generic erosion, lower average net selling price and foreign exchange impacts of 4%." --- (BMY, sec filing, 2024/Q1)

"Economic and Market Factors Governmental Actions Our products continue to be subject to increasing pressures across the portfolio from pharmaceutical market access and pricing controls and discounting, changes to tax and importation laws and other restrictions in the U.S., the EU and other regions around the world that result in lower prices, lower reimbursement rates and smaller populations for whom payers will reimburse, which can negatively impact our results of operations (including intangible asset impairment charges), operating cash flow, liquidity and financial flexibility." --- (BMY, sec filing, 2024/Q1)

Impact of Generic Competition

Generic competition is expected to have an immaterial impact on Pfizer's fiscal-year 2024 revenue, while Johnson & Johnson faces risks from potential generic launches despite valid patents. Merck's Bridion sales declined 10% in Q1 2024 due to generic competition, especially in the EU.

"An anticipated immaterial impact in fiscal-year 2024 of recent and expected generic and biosimilar competition for certain products that have recently lost patent protection or that are anticipated to lose patent protection." --- (PFE, press release, 2024/05/01)

"There is also risk that one or more competitors could launch a generic or biosimilar version of the product at issue following regulatory approval even though one or more valid patents are in place. Form 10-Q" --- (JNJ, sec filing, 2024/Q1)

"Hospital Acute Care Three Months Ended March 31, % Change Excluding Foreign Exchange ($ in millions) 2024 2023 % Change Bridion $ 440 $ 487 (10) % (8) % Prevymis 174 129 35 % 39 % Worldwide sales of Bridion (sugammadex), for the reversal of two types of neuromuscular blocking agents used during surgery, declined 10% in the first quarter of 2024 driven by lower demand in certain ex-U.S. markets due to generic competition, particularly in the EU, partially offset by higher demand in the U.S." --- (MRK, sec filing, 2024/Q1)

Market Reactions and Investor Sentiment

Market reactions to patent expirations in Big Pharma are mixed but generally optimistic. Merck's investor relations strategy and aggressive market approach, Johnson & Johnson's confidence in growth despite external factors, and Pfizer's focus on enhancing shareholder value all signal positive investor sentiment.

"The Investor Relations strategy and especially the current stock price and the market capitalization of Merck." --- (MRK, event transcript, 2024/04/26)

"And so we think regardless of any pricing dynamics in the other markets and changes in political parties and things like that, we think that we're in a very good position to be able to continue to advance our innovation and to continue to grow our business, at above market rates." --- (JNJ, conference, 2024/06/12)

"And finally, we plan to allocate capital with the expectation it will enhance shareholder value. We are very laser focused on that." --- (PFE, event transcript, 2024/04/25)

"It seems like coming to market more aggressively or as aggressively as possible could actually make for a meaningful market opportunity for Merck?" --- (MRK, earning call, 2024/Q1)

"And we've seen that, but we expect that to normalize in the back half. We remain consistent in our belief in the 5% to 7% growth for our end markets and that we will perform well within that. As it relates to pricing, inflation has not been a friend to our industry, and we have put a lot of effort into really ensuring that we can secure preferential pricing across the world." --- (JNJ, earning call, 2024/Q2)

Regulatory Environment and Patent Laws

Big Pharma's revenue streams are heavily influenced by the regulatory environment and patent laws. Companies like BMY and LLY emphasize the critical role of patents in protecting revenue, while MRK highlights the importance of a balanced regulatory approach. JNJ's legal victories and BMY's monitoring of third-party patents underscore the ongoing challenges and strategies in maintaining market exclusivity.

"and commercialization of our products, potential laws and regulations to lower drug prices, market actions taken by private and government payers to manage drug utilization and contain costs, the expiration of patents or data protection on certain products, including assumptions about our ability to retain marketing exclusivity of certain products and the outcome of contingencies such as legal proceedings and financial results." --- (BMY, sec filing, 2024/Q1)

"Other Matters Patent Matters We depend on patents or other forms of intellectual property protection for most of our revenue, cash flows, and earnings." --- (LLY, sec filing, 2024/Q1)

"In principle, we aim for a prudent and balanced approach, avoiding a fragmented regulatory landscape. We continue multilateral cooperation and trade with current and new partners." --- (MRK, event transcript, 2024/04/26)

"If we're clear to go a little bit deeper, the Federal Circuit’s April 1st decision did not invalidate our patent." --- (JNJ, earning call, 2024/Q1)

"Third party patent filings are monitored to ensure the Group continues to have freedom to operate." --- (BMY, press release, 2024/04/25)

Pipeline of New Drugs

Big Pharma companies are heavily investing in expanding their drug pipelines to mitigate the impact of patent expirations. Eli Lilly is focusing on innovation and capacity expansion, Merck is developing new blockbuster drugs, Bristol-Myers Squibb is advancing its pipeline at all stages, Johnson & Johnson anticipates significant growth from upcoming catalysts, and Pfizer provides comprehensive updates on its development pipeline.

"Our focus is to bring innovative medicines to people in need. And in 2024, we're investing in our people, our launches, expanding our pipeline of new medicines, including through business development, and of course accelerating the needed capacity in our manufacturing network." --- (LLY, earning call, 2024/Q1)

"Dear Mr. Pavel, you asked which other blockbuster drugs we have in our pipeline." --- (MRK, event transcript, 2024/04/26)

"Our priorities are (i) to continue to renew and diversify our portfolio through launching new medicines, (ii) advancing our early, mid and late-stage pipeline, and (iii) executing disciplined business development." --- (BMY, sec filing, 2024/Q1)

"Looking ahead, we have many important catalysts in the pipeline that will drive meaningful near and long-term growth across both Innovative Medicine and MedTech." --- (JNJ, earning call, 2024/Q1)

"PRODUCT DEVELOPMENTS A comprehensive update of Pfizer’s development pipeline was published as of May 1, 2024 and is available at www.pfizer.com/science/drug-product-pipeline." --- (PFE, sec filing, 2024/Q1)