Big Pharma growth malady has a risky cure

AstraZeneca

22/09/2026 12:00

The author is a Reuters Breakingviews columnist. The opinions expressed are her own.
By Aimee Donnellan
DUBLIN, Sept 22 (Reuters Breakingviews) - The Big Pharma playbook is relatively simple: invest heavily to develop new blockbuster drugs, and top up your pipeline by buying other drugmakers and smaller biotech groups. The aim is to replace the top selling medicines before patents expire and sales plunge. The latter is likely to be a big problem with drugs generating some $400 billion of revenue coming off patent by 2033. Yet the strategy is now under pressure on multiple fronts.
The past month has been bruising for several Big Pharma names. Last month, AstraZeneca's AZN.L stock fell 9% ​the day after the Financial Times reported it was in talks with Bristol Myers Squibb BMY.N, a clear rejection of the prospect of a megamerger. Then earlier this month disappointing drug trials wiped some $30 billion off Novartis’s NOVN.S market value, which prompted a top shareholder to question the company's M&A strategy. The common theme is that shareholders are increasingly less willing to indulge CEOs' penchant for large-scale dealmaking.
The snag is that the alternative, developing drugs in-house, is becoming an increasingly inefficient use of capital. It's always been hard: one rule of thumb is that one in every 10 drug fails. And, while recent years have seen blockbusters like Novo Nordisk's NOVOb.CO weight-loss treatment Wegovy, or AstraZeneca’s breast cancer medication Enhertu, the likely returns on investment are falling. Berenberg analysts expect drugmakers to generate an annualised 9% return on their 2026 late-stage drug pipelines, down from an average of 11% over the 2016 to 2024 period. At that rate, the sector will only just be covering its 8% cost of capital, with Sanofi SASY.PA, Novartis and Bristol Myers Squibb all falling below that threshold. There are many reasons to think returns may get thinner, including US President Donald Trump's move to slash drug prices, or the growing competition from Chinese pharma groups. On Monday, Novo Nordisk's shares fell 8% after it tried to reassure investors with details of its future pipeline to offset the loss of exclusivity on Wegovy.
Given that outlook, companies may have little choice but to fall back on more M&A. Buying up smaller biotech groups is less likely to spook investors, and can have the added benefit of securing drugs in the later stage of development, thus minimising the threat of outright failure of a drug candidate. But targets are getting pricier as the number of potential buyers swell: Novo Nordisk, AstraZeneca, Merck MRK.N, Johnson & Johnson JNJ.N, GSK GSK.L and Novartis all face patent cliffs in the coming years. The Nasdaq Biotech Index hit a record in August and remains close to that level. Meanwhile, premiums are on the up. Last year, Pfizer PFE.N paid a premium of 159% for Metsera after a bidding war with ​Novo Nordisk, while Biogen BIIB.O paid a 90% premium for immunology and rare disease expert Apellis in March.
With higher price tags on targets, patent cliffs and less than compelling returns on research and development, Big Pharma CEOs are in a bind. Investors may have to get used to lower returns.
     
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CONTEXT NEWS
Shares of drugmaker Novo Nordisk fell nearly 8% on September 21, after the group pledged to boost sales from new drugs.
The Danish company, which is facing increasing competition for key weight-loss drug Wegovy, said it could generate more than 150 billion Danish crowns of new pipeline sales in 2035.
Artisan Partners, a major shareholder in Novartis, on September 10 called for a shakeup of the Swiss drugmaker's board to improve corporate governance, after its shares suffered a record fall following back-to-back trial setbacks.

(Editing by Neil Unmack; Production by Streisand Neto)
((For previous columns by the author, Reuters customers can click on DONNELLAN/Aimee.Donnellan@thomsonreuters.com))