Global pharmaceutical giants are facing the most severe &#34;patent cliff&#34; in a decade, with drugs worth approximately $180 billion in annual revenue set to lose patent protection in 2027 and 2028, accounting for nearly 12% of the global market. This wave of patent expirations will significantly impact industry leaders such as Bristol-Myers Squibb, Pfizer, and Merck.
The phenomenon of patent cliffs in the pharmaceutical industry reflects the inherent contradiction in the funding model for drug innovation—high innovation costs but low replication costs. Governments incentivize the private sector to take on this risk investment by granting about 20 years of patent protection, but when patents expire, generic competitors can instantly erase billions of dollars in revenue for original drug companies.
<h2>The Most Severe Patent Cliff in History Approaches</h2>
Take Merck as an example; the company's star cancer drug Keytruda generated $29.5 billion in sales last year, but its patent will expire in 2028. Concerns over this have led to a 35% drop in Merck's stock price over the past 12 months. <img src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/4ebf710a-d26e-457f-af21-b6ff99609edd.png?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" alt="" original-src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/4ebf710a-d26e-457f-af21-b6ff99609edd.png"/>
Daina Graybosch, an analyst at Leerink, stated that Merck faces a &#34;huge revenue gap&#34; that needs to be filled, and &#34;they cannot fill this gap with just one drug.&#34; This challenge forces pharmaceutical companies to accelerate the search for new growth points, maintaining revenue growth through mergers and acquisitions and innovation.
Merck is not alone. According to research firm Evaluate Pharma, drugs worth approximately $180 billion in annual revenue will lose patent protection in 2027 and 2028, marking a historic high. In addition to Merck's Keytruda, top drugs from Bristol-Myers Squibb and Pfizer will also face patent expirations in 2028.
Tim Opler, managing director of Stifel's global healthcare group, pointed out that while the patent cliff has been foreseeable for years, investors often lack &#34;foresight&#34; and feel &#34;surprised&#34; when the patent expirations actually arrive. He stated, &#34;The pressure on pharmaceutical companies to find ways to increase revenue is extremely high.&#34;
This cyclical boom-and-bust cycle stems from the unstable compromise of the drug innovation funding model. Johns Hopkins University economist Bhaven Sampat noted that the current system is a &#34;blunt instrument for incentivizing innovation,&#34; as &#34;it overcompensates certain inventions while undercompensating others.&#34;
<h2>Mergers and Acquisitions Become the Main Response Strategy</h2>
In the face of the patent cliff, pharmaceutical companies have traditionally adopted acquisition strategies to fill their product pipelines by buying innovative drugs from smaller biotechnology companies. According to Ernst &amp; Young, pharmaceutical companies currently hold $1.3 trillion in merger and acquisition funds.
Under immense growth pressure, Merck announced this Wednesday that it is close to acquiring London-based biotechnology company Verona Pharma for $10 billion, which is seen as a crucial move to address the Keytruda patent cliff.
Merck stated that the company is &#34;advancing the largest and most diversified product pipeline in its history,&#34; including a late-stage pipeline that has doubled since 2021. The company estimates that the potential commercial opportunities for these late-stage candidates alone could reach $50 billion by the mid-2030s
However, the uncertain political environment has made the entire industry act cautiously.
Companies are worried about regulatory bodies blocking transactions and are also facing the threat of tariffs imposed by Trump on the industry. Linden Thomson, healthcare portfolio manager at asset management firm Candriam, stated that the company is conducting due diligence, but many businesses may be waiting on the sidelines due to global turmoil.
<h2>Chinese Assets Become a New Choice</h2>
Unlike the last major patent cliff, companies are now looking to China for acquisition targets. They typically purchase rights to early innovative drugs outside of China and then conduct late-stage trials themselves, providing global data to Western regulatory bodies.
According to data from Ernst &amp; Young, the value of licensing deals between Chinese companies and partners in the U.S. and Europe has reached $35 billion so far this year. Nanna Lüneborg, general partner at European venture capital firm Forbion Capital, stated that the rise of China's biopharmaceutical industry is &#34;absolutely remarkable.&#34;
Daniel Parisotto, managing director of Oppenheimer's healthcare investment banking division, pointed out that large pharmaceutical companies favor Chinese assets mainly because of lower upfront costs. However, he also noted, &#34;Ultimately, whether the success rate of these Chinese assets matches that of Western assets remains to be seen.&#34;
<h2>Patent Extension Strategies Face Political Pressure</h2>
In addition to mergers and acquisitions, pharmaceutical companies are deploying strategies to extend the patent protection period of existing drugs.
AbbVie's Humira is a typical case. The basic patent for the drug expired in 2016, but AbbVie obtained 132 other related patents, creating a &#34;patent thicket,&#34; with the last batch of patents not expiring until 2034. In 2020, AbbVie generated $16 billion in revenue from Humira in the U.S. alone.
However, the pharmaceutical industry faces increased political scrutiny due to such strategies. Trump has consistently criticized high drug prices, and his Senate allies proposed legislation in March this year to combat patent thicket strategies. Indradeep Bhattacharya, a partner at law firm Baker McKenzie, stated that some antitrust and competition regulatory agencies in Europe are becoming more active, &#34;focusing on pharmaceutical companies attempting to manipulate the patent system to unfairly extend monopolies.&#34;
<h2>&#34;Steep Slope&#34; Rather Than &#34;Cliff&#34;</h2>
Frank Lichtenberg, a professor of healthcare management at Columbia Business School, believes that the patent cliff of 2027-28 may resemble a &#34;steep slope&#34; rather than a cliff. The blockbuster drugs nearing patent expiration are almost all biologics—infusion drugs derived from biological rather than chemical processes, which are more difficult to replicate than pills.
Biosimilars are harder to reverse-engineer than generics and are subject to different legal constraints. In the U.S., pharmacists cannot automatically substitute biosimilars for brand-name drugs, and the price decline is not as steep as that of generics. Lichtenberg estimates that biosimilars are priced at about half of brand-name drugs, while generics typically cost only 10% to 20% of the original drug price
Despite the fact that the United States is far behind Europe in adopting biosimilars, this situation may change soon. The FDA has been accelerating the approval process for biosimilars, and a recent executive order from Trump instructed regulatory agencies to look for further ways to expedite approvals.
For companies like Merck, all these potential policy changes only increase the uncertainty regarding the severity of their patent cliffs. As Lüneborg from Forbion Capital stated, these companies ultimately become &#34;victims of their own success.&#34;

Drugs with an annual revenue of approximately $180 billion will have their patents expire in 2027-2028. The patent cliff phenomenon in the pharmaceutical industry reflects the inherent contradiction in the funding model for drug innovation—high innovation costs but low replication costs. When patents expire, generic drug competitors can instantly erase billions of dollars in revenue for original drug companies. Unlike the previous round of significant patent cliffs, companies are now looking to China for acquisition targets

- The global pharmaceutical industry faces a significant "patent cliff," with approximately $180 billion in annual revenue drugs set to lose patent protection by 2027 and 2028, impacting major companies like Merck, Pfizer, and Bristol-Myers Squibb.  
- Merck's Keytruda, a leading cancer drug, is among those facing patent expiration, prompting the company to seek new growth avenues through acquisitions and innovation.  
- As companies look to China for early-stage drug rights and face political pressures regarding patent extension strategies, the landscape of pharmaceutical innovation and competition is evolving.

Global pharmaceutical companies under immense pressure: A "patent expiration wave" is expected in the coming years