James Halstead and Winsome Cheung’s commentary appeared in a Law360 article about the state of pharma M&A and private equity in light of the impending patent cliff.
Expiring intellectual property protection allows competitors to sell the same drug at a cheaper price, with the potential to wipe out revenue at the proprietor. This is known as the patent cliff. Life sciences companies are set to lose $236 billion in revenue by 2030 when patents run out for 190 drugs, according to professional services company Deloitte. To fill this gap, Big Pharma is beginning to target acquisitions of innovative biotechnology companies.
According to James, the venture capital community "has companies at later stages of development, and it's vital for [it] to be able to demonstrate returns through exits. Technology has now started to catch up with the heightened valuation of private companies that happened when the IPO boom ended. That, coupled with the M&A opportunities from patents expiring, means that everyone is thinking optimistically about deal-making in 2026."
Competitors can create generic or biosimilar products when IP protection expires, flooding the market with lower-priced alternatives that drive down the price of the original medication.
Drugmakers are initially rewarded with a 20-year patent when making a discovery, but research and development can devour up to half of this time.
"Once you've found that drug, you must go through expensive clinical trials," Winsome said. "Then, if suddenly somebody can copy that, you can imagine the massive savings they can make by not having to redo all of those trials. They piggyback on that expensive work."
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