Has the pharmaceutical industry emerged from the “era of uncertainty”?

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After years of uncertainty and unpredictability in the pharmaceutical market, a new era of blockbusters, normalized M&A and clarity on inflation-fighting legislation is bringing greater clarity to the industry’s trajectory.

Investment in life sciences has fallen since the COVID-19 pandemic, with biotech companies struggling with tight cash flow and big pharmaceutical companies unwilling to spend in the face of unknown risks.

Recent surveys suggest that these concerns are beginning to ease due to the huge success of obesity drugs and clarification of drug pricing rules put in place by the Biden administration. World Preview Report This month we’ll start with Evaluate.

“The uncertainties of the past year have been replaced by a more predictable reality, including the rise in prevalence of obesity and other major diseases, diversification of treatments, and IRAs being established,” the pharmaceutical intelligence analysts wrote.

The dominance of obesity

The GLP-1 market, which includes metabolism drugs from Novo Nordisk and Eli Lilly, is expected to generate $130 billion in sales by 2030, with diabetes and obesity ranking first in overall product sales, according to Evaluate.

Analysts say these companies were on the brink of making the top 10 last year, but rising sales have already propelled them to the top of the profit rankings.

“Barring any major unforeseen events, Novo and Lilly will maintain their top positions for the next decade and likely beyond,” Evaluate said.

The rapid growth of the obesity treatment market is a positive for the industry, as other pharmaceutical companies are looking for ways to join the race and are increasing their investments in next-generation drugs. Stable sales of blockbuster drugs are helping to reduce uncertainty in the overall environment, and even today’s large companies are investing in new drugs that have the potential to become blockbusters in 10 years’ time.

Beyond the soaring GLP-1, drugmakers are also trying to fill the void left by patent expirations. AbbVie’s Humira began facing U.S. competition last year, but other blockbuster drugs, including Merck’s Keytruda, Bristol-Myers Squibb’s Opdivo, BMS and Pfizer’s Eliquis, Pfizer’s Ibrance and Lilly’s Trulicity, are also likely to plummet soon. According to Evaluate, $100 billion is at risk from these patent expirations between 2027 and 2028.

But patent risks are known, and new stars such as AbbVie’s Skyrizi and Rinvoq, as well as an expanding list of indications for Sanofi and Regeneron’s Dupixent, are poised to make up for lost brand-name sales, analysts said.

M&A is back on track

After a slowdown in deal activity since 2021, 2023 is expected to be the year that sees the highest M&A value in the overall pharmaceutical industry, and it is expected to surpass that figure in 2024. And both large pharmaceutical companies and smaller biotechs will benefit.

For big pharma, bringing new products to the pipeline helps offset losses from patent expiry and improve competitiveness in new therapeutic areas. Central nervous system deals like BMS’s acquisition of Karuna Therapeutics and oncology acquisitions like AbbVie’s Immunogen are prime examples of such pipeline-building activity, but manufacturing capacity is also valuable, and Novo’s Catalent deala noted evaluation.

Additionally, smaller deals are also a way to build an early-stage pipeline without making as much upfront investment.

“Smaller bolt-on acquisitions, like Merck’s purchases of Harpoon and Abseuthys, or Novartis’ purchase of autoimmune-focused Calypso in early 2024, are becoming increasingly popular because they are easier to integrate and less likely to run afoul of a still-hawkish Federal Trade Commission,” Evaluate’s report said.

For the biotech counterparts in these deals, acquisitions can be a lifeline in times of cash scarcity and investment uncertainty, and with the IPO market offering less clarity, M&A is often the best option, analysts say.

External forces

The pharmaceutical industry has cut back on R&D spending for a variety of reasons, from macroeconomic hardship to geopolitical tensions to a focus on M&A, but when it comes to regulations, the IRA’s changes are a necessity that companies have no choice but to accept.

But with several cases against the IRA still pending in court and the possibility of a new presidential administration coming into power in 2025, the law is likely to prevail.

“With payers facing an unprecedented number of new drugs and public attention still focused on drug prices, it is difficult to imagine the U.S. government eliminating IRAs,” Evaluate analysts said.

As the biopharmaceutical market emerges from a path of years of uncertainty, the clarity that a return to basics brings could mean a stronger industry in the years to come.