In Large Pharma Deep Dive: The State of the Union Is Not Good, Max Smock, CFA, provides a comprehensive analysis of the pharmaceutical industry’s current state and outlook. Overall, the report paints a challenging picture, with significant headwinds from loss of exclusivity, the Inflation Reduction Act (IRA), and potential policy changes.
In terms of valuation and revenue, large pharma is trading at 14.0x 2025 EPS estimates, below its 20-year average forward P/E multiple, while revenue is expected to increase by 6.1% in 2025. From 2024 to 2029, revenue is projected to grow at a 5.0% compound annual rate. R&D spending increased by 9.7% in 2024 and is expected to grow by 3.6% in 2025.
On the other hand, the product pipeline has seen a significant decrease in early-stage programs as companies focus on later-stage assets to offset headwinds from loss of exclusivity and the IRA. Loss of exclusivity is the most significant headwind, with 46 key drugs losing exclusivity between 2023 and 2029. Sales of these drugs are projected to decrease at a 16.3% compound annual rate. Meanwhile, the IRA is expected to impact revenue, with total sales of the first 10 negotiated drugs projected to decline at a 20.4% compound annual rate from 2024 to 2029.
Another area of concern is Robert F. Kennedy Jr.’s appointment as secretary of the U.S. Department of Health and Human Services, which could lead to policies negatively impacting vaccine uptake. Recent M&A history is also concerning, given that after a strong year in 2023, total deal value declined in 2024, with a significant step-down in average deal value.
For more information about our healthcare research, please contact us or your William Blair representative.