Big Pharma needs a refill

As investors nurse their headaches from the latest tech selloff, Big Pharma has just the prescription.

Eli Lilly comfortably beat Wall Street expectations on both top and bottom lines today, reporting quarterly revenue of $24.4 billion, up 39% from a year ago. The drugmaker also raised its full-year revenue forecast, thanks to insatiable demand for its blockbuster diabetes and weight loss drugs.

Mounjaro brought in $10.7 billion, while Zepbound generated another $5.35 billion. Together, the two accounted for roughly two-thirds of Lilly’s revenue. And demand has been so strong that worldwide sales volumes surged 53%, more than offsetting a 15% decline in realized prices. Shares jumped 6.63% on the news.

Merck’s ticking clock

On the other side of the pharmaceutical industry, Merck is enjoying its own blockbuster success.

The drugmaker also topped Wall Street’s earnings expectations, reporting $18.1 billion in quarterly revenue, up 5% from a year ago. Nearly half of that came from Keytruda, its bestselling cancer treatment, which generated $8.6 billion in sales. Shares popped 3.83% today.

But Merck has a problem: Key US patent protections for Keytruda begin expiring in 2028, potentially opening the door to cheaper biosimilar competitors and threatening its biggest revenue source. The company has already felt the effects of losing patent protection, with sales of its older diabetes drugs Januvia and Janumet falling 39% last quarter amid generic competition.

The next prescription

That’s a risk that extends well beyond Merck: More than $500 billion in global prescription drug sales could face competition from patent expirations between 2026 and 2032, per industry research group Evaluate. That’s putting pressure on drugmakers to keep their pipelines stocked, whether through developing new treatments or spending billions to acquire them.

Merck, for one, is bracing for more than $2 billion in revenue headwinds from generic competition and patent expirations in 2027 alone. To prepare for life beyond Keytruda, the company has gone on a shopping spree, announcing nearly $26 billion in deals over the past year. Lilly isn’t sitting still either, having spent at least $31.5 billion on acquisitions this year alone.

Still, the outlook isn’t all grim. Merck’s newer pulmonary hypertension treatment Winrevair saw sales surge 93% last quarter, while Lilly’s weight loss empire continues to expand despite falling prices.

It’s another reminder that even the most promising upsides from prescriptions come with a list of potential side effects—something worth keeping in mind as investors make their own diagnosis.—SY