Pharma 2025 Outlook: Shifting to U/P

• • IG Pharma is expected to face intensifying operating headwinds in 2025. Primarily due to losses of exclusivity (LOEs) and abundant M&A needs. The sector is projected to achieve mid- to high-single digit revenue growth through 2030, driven by innovative drug approvals in areas like obesity/diabetes, oncology, immunology, and neurology. However, this growth will be unevenly distributed, with significant gains for GLP-1-focused companies such as Eli Lilly and Novo Nordisk.
  • Patent expirations will increase significantly in 2025 and beyond.Affecting nearly all companies under coverage, including PFE, BMY, NVS, AMGN, and GILD. These expirations will add pressure on late-stage pipelines and new commercial launches. The sector trades at an OAS of ~66 bp, close to historical tights, which may limit potential performance improvements.

Relative Value

Operating fundamentals are expected to be supported by the uptake of new products, particularly innovative medicines in oncology, immunology, and diabetes/obesity. However, the ramp-up in LOEs will emphasize the importance of pipeline execution and new product launches. Companies are focusing on preparing for these LOEs through bolt-on M&A to improve diversification and strengthen mid- to late-stage pipelines, leading to anticipated elevated deal activity in 2025, primarily of the bolt-on and medium-sized variety.

This potential increase in M&A activity could drive leverage deterioration, though not to the extent seen in previous Pharma M&A cycles (2015-16 and 2018-19), but enough to potentially widen spreads.. Some companies may weigh the impact of potential downgrades against their M&A priorities, as seen with Amgen, Pfizer, and Bristol-Myers in recent years. Other companies that might consider prioritizing strategic M&A over maintaining ratings include Viatris, Biogen, and possibly Gilead.

Other companies that might consider prioritizing strategic M&A over maintaining ratings include Viatris, Biogen, and possibly Gilead.