I'm Hunting For Buyouts — And Here's Where I'm Looking

Let me tell you folks a story …

During my 22 years as a business reporter (and during the 20 subsequent years as an investment columnist, analyst and stock picker), I enjoyed several stints where biotech and Big Pharma was my “beat” — journalist parlance for “the area I’m assigned to cover like a microscope.”

And during those stints, I learned a whole lotta lessons about how drugs are developed, the financial costs and business risks involved, the blueprints for true marketing success and the pitfalls drugmakers face.

Those lessons were great discoveries — with Wealth Builder potential — and I put them to use … repeatedly.

Let me tell you a story — a true tale and one that delivered a 10x happy ending to investors.

My story goes back to 2012, when I was two years into my 11-year run at my investment newsletter Private Briefing.

This story centers on the Big Pharma/Biotech market, a sector I’ve spent covering — as a national business reporter, financial columnist and stock picker.

And it involves a massive Wealth Builder window industry insiders and Big Money Pros refer to as a “Patent Cliff.”

Let me tell you that story … explain how much money shrewd investors can make … and show you why the lessons I learned back then apply again now — in a magnified way.

Let me start by sharing a foundational bit of insight every biotech investor needs to know — I call it “The First Rule of Biotech” — and a core Stock Picker’s Corner (SPC) storyline I refer to as “The Hunt for the Next Blockbuster.”

Billions and Billions and Years and Years

According to Tufts Center for the Study of Drug Development, it takes perhaps 12 years and as much as $2.6 billion to develop a new drug.

And the attrition rate is brutal.

Of every 5,000 to 10,000 drug “compounds” scientists study on the research bench, only one — that’s right, one — becomes a commercially approved medicine.

That’s a microscopic success rate of 0.01% to 0.02%

Is the journey worthwhile?

You bet. Big Pharma companies enjoy quasi-monopoly pricing power. And monopoly prices to boot …

Once approved and out for sale, gross margins on branded medicines (before backing out R&D costs and company overhead) start at 70%. For “Blockbusters” — drugs with yearly revenue of $1 billion or better — those margins can run as high as 85%.

To put it another way: For every $100 in revenue, Big Pharma firms rake in gross profits of $70 to $85.

Even after accounting for those other costs, operating margins range between 30% to 40% — and sometimes even more.

Compare that to the top S&P 500 companies, whose gross margins are 10% to 15%.

Net margins on those drugs average a still-high 23%, says the AHIP, the trade group for the health-insurance industry.

Think of it like this:

• Gross Margin: How profitable the drug is.

• Operating Margin: How profitable the business is.

• Net Margin: How much goes to shareholders.

The bottom line: Blockbuster drugs are one of the most-profitable legal products in today’s global economy.

Here’s where the “Patent Cliff” matters.

Drug patents are lengthy on paper but short in the real world, since the 20 years of protection start when the patent is filed — not when the drug is approved. If a drug takes 12 years to develop and get through the three-phase U.S. Food and Drug Administration (FDA) approval process, it means a company doesn’t start generating revenue until year 13.

There are ways to extend the patent umbrella: For instance, a company can expand the label/add new “indications” or treatments, or reformulate the drug (such as “extended release” versions).

It’s a complicated discussion — and isn’t necessary here.

What is important is this reality: Once that patent expires, revenue (and those fat profits) collapse as rivaling generics move in.

Which brings me to the “Patent Cliff.”

That Long, Screaming Fall

When one or two or three companies lose their patents, it’s bad for those companies.

But when a whole bunch of companies lose patent protections on their respective “Blockbuster” drugs all at once, it’s known as the Patent Cliff.

Patent Cliffs get their name because they (quite literally) can send profits — and stock prices — over the cliff.

It’s a disaster for them. But an opportunity for investors like you and me.

Here’s why: Those Big Pharma players don’t stand pat.

CEOs have shareholders to look after, stock prices to protect and jobs (their own) to keep.

So they fight back.

When they lose patent protections, they do their best to respond. They step up R&D. They engineer “bolt-on” buyouts of other products (or entire companies). And they sometimes go in the other direction — with strategic moves like spinoffs or other types of corporate breakups.

Breakups and buyouts can put money in our pockets.

It’s here where we pick up my story …

A Big Win For Subscribers

The “First Blockbuster” was the antacid drug Tagamet, which hit $1 billion in sales in 1986. The two biggest of late (besides the COVID-19 vaccines) are the AbbVie arthritis-battler Humira, with peak yearly sales of about $22 billion, and the Merck & Co. MRK 0.00%↑ anti-cancer drug Keytruda, which rings the register at about $21 billion a year.

There obviously have been many others, too.

The Patent Cliff of the early-to-middle 2010s was massive. It eradicated an estimated $120 billion to $150 billion in annual revenue for the global Big Pharma industry: Patents expired on such blockbusters as:

• Lipitor (Pfizer) — once the world’s best-selling drug.

• Singulair (Merck).

• Seroquel (AstraZeneca).

• Zyprexa (Eli Lilly).

• Diovan (Novartis).

As I told you, a blockbuster is a drug that has annual sales of at least $1 billion a year. But that’s just the “starting line.” Most blockbusters are much bigger.

Lipitor alone generated more than $10 billion a year before its patent expired in 2011. Seroquel’s sales dropped more than $1 billion in a single quarter after generics hit the market.

Which brings me back to my story — a prediction I made and an opportunity that I brought to my subscribers.

In a report to my subscribers, I predicted a “Biotech Buyout Boom.” And I started hunting for ways to play it.

Right around that time, a tiny biotech firm called Pharmacyclics created a new blood cancer drug — just as a slew of Big Pharma players were losing those key patents.

I knew this drug — called Imbruvica — was a blockbuster-in-the-making. I knew we’d be getting in early. And with so many Big Pharma firms careening toward that “Patent Cliff,” I knew an outright buyout was a very real possibility — and an opportunity for my newsletter subscribers.

In short, I knew there were two ways to win:

• Either Imbruvica’s blockbuster revenue would rocket Pharmacyclics’ stock into the stratosphere (indeed, the FDA viewed it as a critical new drug — which is why they “fast-tracked” its approval).

• Or a big drug company — desperate to restock its patent-cliff-drained pipeline — would achieve the same result by buying the company outright.

So I recommended Pharmacyclics shares to my Private Briefing subscribers.

I even predicted the company would end up as a buyout play.

I was right.

And we scored.

In March 2015 — a mere three years later — Pharmacyclics was sold to AbbVie Inc. ABBV 0.00%↑ for $21 billion. And the Private Briefing subscribers who followed my reports pocketed gains of as much as 818%.

Just look at how Imbruvica sales zoomed:

A stunner, isn’t it?

I shared that whole story – because it’s about to happen again. There’s a “New Patent Cliff.” It’s already playing out. And we’re hunting for new opportunities for you …

Between 2024 and 2030, the Top 20 biopharma companies have more than $180 billion in sales “at-risk” due to expiring patents. Some major drugs facing the cliff (and their annual sales, and patent expiration):

• Keytruda (Merck) — $25 billion/year, patent expires 2028.

• Eliquis (Bristol Myers Squibb/Pfizer) — $13 billion, 2026.

• Humira (AbbVie) — already off-patent, sales halved since 2022.

• Revlimid, Opdivo, Yervoy, and others are also on the chopping block.

It gets starker: Consultant BCG says $150 billion of revenue will be affected through 2027 alone. A broader list of branded drugs means the patent cliff could scythe away annual sales of $236 billion to $300 billion.

And if you roll in tiny players, too — and go out to 2032 — some Patent Cliff estimates run as high as $350 billion, says CNBC.

That’s double the damage of its 2012 predecessor.

Drugmakers are scrambling to fill the gaps with acquisitions, new drug launches, and reformulations (like subcutaneous versions) that can extend exclusivity.

That’s all part of the aforementioned “Hunt for the Next Blockbuster” — one of our top Wealth Builder storylines. That “hunt” is being driven by the push for more patent-protected drugs … by an ever-growing market (see chart).

Technology keeps advancing. New therapies are treating old maladies with greater effectiveness than ever before. Plus, new technologies like AI are supercharging drug development — potentially compressing the time-to-market cycle and possibly raising the curtain on the Era of (Truly) Personal Medicine.

There’s another “Trigger” at work here — one that wasn’t a factor in the Patent Cliff of 2012.

I’m talking about the COVID-19 Pandemic.

Many companies cut back on R&D during COVID — or watched as their COVID-related revenue fell off a cliff. Those factors, and others, have contributed to pipelines that need topping off.

Add in the Patent Cliff and you have what CNBC describes as “a looming revenue hole” ... and what we describe as the new Wall Street game show “Let’s Make a (Biotech) Deal.”

It already has an audience.

Big Game Hunting

Dealmaking — or M&A (for mergers and acquisitions) in Wall Street parlance — was moribund as 2025 began. With the Trump Administration’s Trade War promising higher tariffs and its proposed war on high drug prices, you can understand why.

But dealmaking really accelerated late last year. For all of 2025, dealmaking increased 65% to hit $149 billion — and the average deal value doubled from 2024.

One of the headliner deals was Johnson & Johnson’s JNJ 0.00%↑ $14.6 billion play for central nervous system disease specialist Intra-Cellular Therapies. The “crown jewel” was Intra-Cellular’s Caplyta, a therapy for bipolar disorder and schizophrenia that also got FDA approval for treating major depressive disorder (MDD).

Novartis AG NVS 0.00%↑, Novo Nordisk NVO 0.00%↑ and Merck also made important deals

We’ll see more of that.

And as I learned in my years of covering these sectors as a reporter and stock picker, when Big Pharma goes shopping, it usually spends in the biotech aisle.

Here’s proof: Of the drugs approved between 2014 and 2023, roughly half the blockbusters were brought aboard via buyouts – and weren’t the product of internal R&D – says an early-year report by CNBC.

Eli Lilly & Co. LLY 0.00%↑ and AstraZeneca PLC AZN 0.00%↑ acquired eight and five, respectively, making them the most successful, that report said.

Europe’s Novartis, Novo and GSK PLC GSK 0.00%↑ have all been upfront about their intent to keep shopping to “buy growth.”

SPC subscribers have already profited from this — both in our Model Portfolio and in our Special Situation Portfolio.

We’re continuing to look for more “Let’s Make a Deal” beneficiaries.

Some may be smaller growth companies — with a buyout kicker.

But it may also be bargain-priced Big Pharma/Big Biotech firms that will benefit from shrewd dealmaking.

After all, even though the global drug market keeps growing, it’s also getting more “concentrated.” The percentage of global drug sales protected by patents is projected to drop from 12% in 2022 to 4% by 2030.

That means we’ll need to pick the winners.

I’ll have more on this very soon.

Keep watching;