The Pfizer-BioNTech vaccine against Covid-19.
Javier Torres/AFP/Getty Images
The shadow of patent expirations haunts the peripheral vision of investors in drug firms such as Pfizer and AbbVie . Next year, AbbVie will lose U.S. exclusivity on Humira, the autoimmune treatment that’s the biggest selling product for the company, and indeed, for the whole pharma industry.
To offset the revenue impact as patents expire, big pharma has learned to refresh its product pipelines with internal drug development and outside deals. Deep-pocketed giants routinely partner up with promising biotech firms, or just acquire them outright. It’s that prospect that led BofA Securities analyst Geoff Meacham to upgrade Pfizer (ticker: PFE) Wednesday to Buy from Neutral.
Meacham said he’d worried about a cluster of patent expirations starting in 2025 at Pfizer. But thanks to the success of the company’s Covid-19 vaccine and other products, Meacham thinks Pfizer will generate more than $100 billion in cash between now and 2025. That will give Pfizer plenty of dry powder to invest in research and new product acquisitions.
“In 2022 we expect the Pfizer narrative to shift to the benefits of its Covid-19 success, in the form of stepped-up pipeline/portfolio investments,” wrote the BofA analyst. He raised his price target on Pfizer stock to $70 from $59 .
That set us thinking about how much cash will become available to other big pharma firms for pipeline-filling deals, in the next few years. So we screened the 15 largest drug companies and ranked them according to Wall Street’s forecast for their total free cash flow in the three years from 2022 through 2024. In the table below, you’ll also find their holdings of cash and short-term investments, as of their latest reported balance sheet.
Some of the spare cash accumulated by the drug industry will surely be returned to shareholders through dividends and stock buybacks. That will still leave plenty for new products.
Drug Money
Many big pharma firms will be flush with cash in the next three years, enabling deals to fill their pipelines
| Company / Ticker | Stock Price* | Market Cap ($bil) | Cash & Mktble Secs (latest Q) (USD, bn) | Free Cash Flow** |
|---|---|---|---|---|
| Johnson & Johnson / JNJ | $172.68 | $450.4 | $31.0 | $87.5 |
| Pfizer / PFE | 55.76 | 306.1 | 30.0 | 82.2 |
| AbbVie / ABBV | 137.66 | 238.9 | 21.5 | 69.1 |
| Roche Holding / RHHBY | 50.72 | 351.0 | 8.7 | 57.0 |
| Bristol Myers Squibb / BMY | 62.72 | 137.9 | 27.7 | 56.3 |
| Merck / MRK | 79.04 | 194.5 | 18.6 | 52.7 |
| Novartis / NVS | 88.47 | 213.1 | 16.8 | 45.4 |
| AstraZeneca / AZN | 57.54 | 176.8 | 16.0 | 31.2 |
| Amgen / AMGN | 226.86 | 128.3 | 17.8 | 29.7 |
| Sanofi / SNYNF | 98.53 | 126.4 | 29.0 | 27.6 |
| Gilead Sciences / GILD | 72.53 | 90.6 | 11.0 | 26.3 |
| Eli Llilly / LLY | 264.15 | 255.2 | 10.8 | 25.3 |
| Moderna / MRNA | 226.00 | 94.5 | 12.1 | 25.3 |
| GlaxoSmithKline / GSK | 44.05 | 108.8 | 16.0 | 25.0 |
| Novo Nordisk / NVO | 104.34 | 238.4 | 10.2 | 24.0 |
*Last Traded Price; **Three year sum 2022 – 2024 ($bil)
Source: Factiva
Leading the cash flow forecasts is Johnson & Johnson (JNJ), which is a more-complex conglomerate than other drug-makers these days—with divisions for medical devices and consumer products. Following the lead of other pharma firms such as Merck (MRK) and Bristol Myers Squibb (BMS), J&J has decided to separate the consumer unit from its drug-and-device business, in a transaction that won’t happen before the end of 2022. There will be plenty left, after spinning off the consumer health products—which brought in just15% of the last quarter’s revenue.
J&J has fast-growing drugs for cancer and autoimmune disorders, and the company told analysts in November that its existing drug products should reach $60 billion in annual revenue by 2025. To make that happen, J&J will supplement its existing $31 billion in cash with free cash flows totaling some $88 billion through 2024. That could buy a lot of opportunities—like the licensing deal that J&J has with Legend Biotech (LEGN) for the promising cell therapy cilta-cel for dire blood cancers.
Pfizer’s cash prospects caught the eye of BofA’s Meacham for good reason. Analysts surveyed by FactSet expect Pfizer to pull in over $80 billion in free cash flow in the next three years, in addition to the $30 billion the company already has on its balance sheet. That will allow for more deals like the $6.7 billion cash acquisition of Arena Pharmaceuticals (ARNA) that Pfizer announced in December, to get Arena’s investigational treatments for autoimmune illnesses such as ulcerative colitis and Crohn’s disease.
AbbVie (ABBV) faces one of the steepest patent drop-offs in the business, when Humira loses its U.S. exclusivity next year. But analysts expect the company will have $69 billion in free cash flow, through 2024, to restock its shelves. Other firms expected to see high swells of cash are Roche Holding (RHHBY), Bristol Myers, and Merck.
These piles of cash shouldn’t only cheer the shareholders of big pharma firms. Smaller biotech firms will be on the receiving end of licensing or acquisition deals. When Pfizer made its deal for Arena last month, the $100 a share deal was twice Arena’s trading price.
Write to Bill Alpert at [email protected]
