By Alex Philippidis
The largest biopharmas are succeeding in overcoming the so-called patent cliff of sharply reduced future sales as existing blockbuster drugs lose patent protection—at least over the next five years, a report by Morningstar concludes.
As a result, according to the firm’s recently-released Biopharma Pipeline Report, the biopharma industry can anticipate a healthy 4.5% in compound annual earnings growth over the next five years—excluding COVID-19 products, which would lower the estimate to 3.3%, since their sales have sharply fallen from 2021–22 pandemic highs.
COVID vaccines and drugs are a potential headwind to revenue growth through 2027, says Morningstar. The report says the market “still struggles to take a long-term view on the potential of mRNA technology,” without addressing political opposition to vaccination policy, and steady if anecdotal reports of side effects linked to COVID vaccines.
Other potential hurdles cited in the report include scrutiny of large mergers-and-acquisition (M&A) deals by regulators such as the U.S. Federal Trade Commission (FTC); and the Inflation Reduction Act, which implements prices negotiated with Medicare 13 years after approval of biologics, but only nine years for small molecule drugs.
On the brighter side, the report foresees stellar short-term growth as leading diabetes drugs have expanded or are being expanded into obesity indications, as well as positive growth for Alzheimer’s drugs either marketed or expected to be soon.
Morningstar projects that two companies—Novo Nordisk and Eli Lilly—will maintain a combined roughly 75% share through 2032 of the obesity market, projected at $65 billion in 2031, before the expiration of Novo’s semaglutide patent in 2032. That will be driven by Novo’s Wegovy® (semaglutide), projected to earn $12.5 billion in 2027; and Lilly’s Mounjaro® (tirzepatide), pegged even higher at $21.2 billion in 2027. Also expected to generate significant sales in ’27 are pipeline candidates like Novo’s cagrisema at DKK 18.6 billion ($2.6 billion) and Lilly’s retatrutide at $514 million.
However, pipeline candidates at Amgen (AMG 133, set to release Phase II data next year) and Pfizer (whose danuglipron is set to enter Phase III in 2024) could chip away at the leaders. One key competitive avenue would be price: Wegovy carries a list price of $17,600: “We expect net pricing globally to fall closer to $3,000 annually in the long run,” the report predicts.
In Alzheimer’s disease, Morningstar projects 2027 annual sales of $4.877 billion for Lilly’s donanemab, which is under FDA and European Medicines Agency review with action expected by year’s end. Next-highest in sales, Eisai and Biogen are expected to rack up a combined $4 billion from Leqembi® (lecanemab), with Biogen forecast to reap a $700-million share of profits. Leqembi won full FDA approval in July, seven months after obtaining accelerated approval.
The report also names five biopharma giants as being undervalued given their reduced stock prices since the bull market ended in 2021—Bayer, Gilead, GlaxoSmithKline (GSK), Pfizer, and Roche.
Karen Andersen, CFA, Morningstar senior strategist, biotechnology, and lead analyst for the Biopharma Pipeline Report, recently discussed the report’s findings and the broader successes and challenges faced by the biopharma industry, with GEN Edge:
GEN Edge: The report observed that large drug developers are surmounting patent cliff losses of exclusivity over the next five years with both recently approved drugs and pipeline candidates. What happens after 2027?
Andersen: We did an industry landscape report earlier this year, where we talked about the expectation for a big year of patent losses in 2028. 2028 looks concerning because you have some big-name drugs like [Merck & Co.] Keytruda® (pembrolizumab), and then [Bristol Myers Squibb’s] Eliquis® (apixaban) and some of the cardiovascular drugs that are going off patent.
That’s something that a lot of companies are preparing for now, so that they have time to finish bringing any acquired pipeline candidates through trials and get them launched and get them having meaningful sales by that point.
GEN Edge: How much does this slow down M&A activity, despite the FTC agreeing to allow Amgen-Horizon?
Andersen: I think that there are enough companies with significant cash and trying to adjust their pipeline strategies for some of the headwinds we’re seeing, like the Inflation Reduction Act [IRA], that that there’s still a lot of motivation for adding to their internal pipelines.
In terms of the fears about the FTC and all the scrutiny on potential large M&A deals, the fact that it looks like the Amgen-Horizon deal has now been blessed is a good sign for future deals getting through. But it needs to be clear to regulators that this isn’t going to turn into a situation where the acquiring company then can abuse their power to bundle these products and protect from other competitors who are launching potentially gaining any market share. That’s something Amgen promised that they wouldn’t do.
I think that probably other acquiring companies are going to have to do something similar. So, they may be a little bit more constrained on what they can do in terms of their pricing leverage from deals. But definitely, I would say, the door still looks very open to doing deals that bring in just new pipeline products that look innovative and could support growth.
GEN Edge: Does Amgen-Horizon signify that the FTC is rethinking its strategy of challenging big-dollar M&A as it did with Illumina-Grail, and more recently Pfizer-Seagen, where the FTC made a second request for data?
Andersen: There’s definitely been a big push to examine these deals and push back. If you look at Amgen-Horizon, that was probably an overreach… I do think that they’re still watching. But I think that reasonable deals—where there’s not huge overlap in therapeutic areas, when you’re not creating some new monopoly in a certain indication—would be likely to get through.
GEN Edge: In the report, the categories of drugs that are expected to grow sales differs between recently approved drugs—where the categories were obesity diabetes, immunology—but if you look at the pipeline candidates, you’re looking at neurology, obesity but also rare disease and diabetes. Is there any trend behind that difference?
Andersen: Yes, that’s interesting. I would take away that areas like obesity and diabetes, and anything that’s related to cardiometabolic, are big, both for approved drugs and pipeline drugs. Neurology is an area where that’s definitely being driven by first, Alzheimer’s drugs getting approved, and then a more increased focus on some pipeline programs—like BIIB080, the tau program Biogen has with Ionis [Pharmaceuticals]. I think that that’s bringing neurology more into focus.
Rare diseases is also an area of increasing focus. And honestly, potentially going further out, immunology, I think, could be really interesting areas for companies to continue to focus on. I think the IRA really further solidifies that.
Oncology could become just a little bit more difficult, because that’s an area where the population can be much more Medicare heavy, thus having to deal with price negotiation. Also, companies will probably try to refocus more on biologics rather than small molecules so they get longer protection.
GEN Edge: In Alzheimer’s, the report pegs Lilly’s donanemab as potentially generating the biggest sales by 2027, followed by Biogen/Eisai’s Leqembi. What effect will other Alzheimer’s drugs in the pipeline have on those sales?
Andersen: [Donanemab and Leqembi] are going to have a chance at seeing significant sales over the next several years. I think that what makes it difficult to size the rest of the market right now is, Leqembi is not seeing significant sales this year. They’re probably not going to see very significant sales next year. But starting at 2025 is when we could start to see much more significant sales.
By then, we’ll see improvement in getting patients diagnosed because it will be easier for them to be diagnosed and treated—like blood-based tests instead of having to go in and get a spinal tap or getting additional imaging done initially. Or, like having a subcutaneous product that can be administered maybe at home rather than having a patient come into a busy infusion center that may not be easy to get to, and might be harder to schedule appointments. That’s all going to get ironed out, but it’s going to take a little bit of time. Once it does, I think, these are going to be very popular medicines.
I’d say it’s a pretty full pipeline right now in terms of things that are in clinical development, and that covers the amyloid targeting products and the tau targeting products. And then, things like Novo Nordisk’s semaglutide, which maybe can do everything. We’ll see.
GEN Edge: In diabetes, Ozempic® (semaglutide) and Mounjaro® were listed as among drugs most likely to grow sales. Both have been slapped with label updates because of some cases of potential blocked intestine side effects, which have also been reported with Wegovy®. How much will that dent their sales?
Andersen: There’s investigations and reviews about suicidal thoughts in patients taking these drugs. I know that these drugs in general, particularly Ozempic, have been used for years in diabetes with a solid safety profile. The problem is now that with obesity, we’re seeing many, many more patients taking these drugs, so it’s an opportunity for any potential side effects to emerge. As long as the side effects remain rare, and there’s nothing that’s unexplained and causing lethal side effects, I think that there’s still going to be very strong demand given the extremely high efficacy for these drugs.
GEN Edge: Speaking of obesity drugs, how much is that category expected to keep growing over the next few years? And how dependent is that growth long-term on celebrities and social media publicity?
Andersen: We’ve modeled $65 billion in global obesity drug sales in 2031. I think that that’s going to continue to be dominated by Novo Nordisk and Lilly. We assume that pricing will fall fairly substantially from the list price that we have right now in the U.S. for drugs like Wegovy. We also assume there could be some competition that might be driving that that price decline.
One of the big questions I have is, how long are patients going to actually stay on therapy? The companies have been talking a lot about how patients need to take these chronically, or else they’re at a very high risk of regaining weight. But practically speaking, given the price that they’re at and given some of the more annoying side effects—things like nausea and just gastrointestinal issues—it’s hard to imagine everyone staying on therapy for the rest of their lives once they’ve lost the weight.
The companies do need to work on a strategy for maybe reducing dose, taking drug less frequently, or something in a maintenance category that becomes something that patients can live with in order to maintain that weight loss. In our forecast, we’re actually just assuming that patients do stay on therapy chronically. But we’ve kept the market penetration a little bit lower. So, if patients do end up going off therapy, I think there’s still plenty of room to reach our forecast of $65 billion.
GEN Edge: Looking at vaccines, how much is vaccine growth going to be driven by newer versions of the COVID shots like the ones just got approved a couple of weeks ago?
Andersen: That’s interesting. We hadn’t mapped [COVID shots] in the pipeline, as those were already approved. What we’re referring to in vaccines is more the new RSV products that we’ve got that could be driving growth over the next few years.
We are still above consensus longer term on demand for COVID vaccines. We’d all agree that 2023 is going to be a huge drop-off compared to what we saw in 2021 and ’22, but I think that there is significant demand, especially among older individuals, high-risk individuals, younger people who just don’t feel like getting COVID. It’s not going to be 75% of the population. It’s going to be something more along the lines of 25% of the population might go in and get and get a shot, which is a lot less than the flu shot, which is about 50%, so I think that revenues from the COVID vaccine for companies like Pfizer and Moderna could stay relatively steady once we get down to this lower, steady state in 2023 and 2024.
GEN Edge: You mentioned the Inflation Reduction Act, about which the report says biopharma companies appear overly concerned. How is their concern excessive?
Andersen: I think that the goal of the Medicare negotiation was really more about trying to basically stop the bad actors who have had extremely long patent protection for their products because of the patent evergreen system. So, it’s looking at products that have been on the market already for a significant amount of time, and essentially forcing a price cut at a time when maybe there should have been generic competition to begin with.
I’d argue that maybe for the small molecules, maybe a [seven-year exemption from price negotiations], that’s a bit on the short side. I think for biologics, [the exemption period] is pretty generous, having 13 years exclusivity seems like a reasonable number. But when you look at the list, if you look at the list for 2026, most of these products were going to be going off patent that year or the following year. So, if you’re someone who cares about just the long-term value these companies can generate, it’s typically not as big a concern as I think that the market had been thinking.
GEN Edge: When some in industry argue that the Inflation Reduction Act opens the door for European-style price controls on new drugs, you don’t agree?
Andersen: No, I’m not sure I see that much of a connection there. I know that historically, the U.S. has been the country that has essentially funded innovation globally, because we have such premium price products. I think that will stay that way. There’s nothing in the IRA that prevents companies from charging a high price for a new drug, and we still don’t have any kind of price control on that. This is more about making sure that that older drugs, the revenues and the profits that companies are getting from older drugs, do trail off. And I think that that’s going to be frustrating.
In some respects, companies are going have to rework their pipelines. Maybe a little bit less focus on some small molecules in some areas. Maybe launching in the bigger markets first rather than starting with smaller markets and working your way up. So there’s going to be some changes and some odd strategies. But the main word we used in the report was manageable. It looks like a very manageable hit for the industry.
GEN Edge: You mentioned oncology might see somewhat less activity if companies wish to avoid price negotiations given the age of patients. Are there other indications like that?
Andersen: Possibly some neurological indications; Alzheimer’s is by far the biggest one that I know of in terms of exposure to Medicare. The opposite side of that argument is the fact that there’s so much innovation, and there’s so much room for new entrants to come in that I don’t think that’s something that would be discouraging, especially since now we’re seeing Leqembi and donanemab probably launching—both of them biologic therapies. So we’re likely to see pretty lengthy protection, regardless of future Medicare negotiation.
GEN Edge: Looking ahead, what key headwinds and tailwinds are most likely to affect how biopharma companies perform the rest of this year and into 2024?
Andersen: Headwinds, a lot of interest is going to be tied around what happens with M&A. If we do start to see companies more encouraged by what’s happened with Amgen and Horizon and start to see more deals done, I think that that’s going to be more positive for the industry. Most of the companies in this report, anyway, are in a safe position in terms of financial health. So I don’t see as many concerns.
For some of the smaller biotechs that need funding, there’s a little bit more concern about interest rates. A lot of these companies are already sitting on a lot of cash, so they’re in a really good position to keep adding to their pipelines.
I’d also say, watching the IRA further roll out. I think we’re going to get more insight into exactly how much a lot of these drugs are going to be discounted. And once they’re negotiated, we’re going to see all the changes to Medicare Part D be rolled out, like the price and out-of-pocket caps for patients. Seeing how that in ends up affecting demand for pharmaceuticals, I think that’s going to be really interesting, too. And that’s all happening in the next couple of years, by 2025.
Alex Philippidis is Senior Business Editor of GEN.