BIOTECH — STILL A BUY. THE CLIFF THE THESIS.IS
MS Exhibit 9, 12 largest US biopharma. Numbers first:
• $258bn of 2026 revenue — 48% of the group's $540bn — sits on molecules losing exclusivity before 2033 • Still $226bn / 35% in 2030. Launches only partially plug it: revenue +18% over the period, LOE-exposed revenue -12% • Nearer window: ~25% of 2026 revenue rolls off by end-2030 on avg • Dispersion is the trade: MRK 59%, AMGN 48%, BMY 47%, PFE 35% vs VRTX 3%, ABBV 9%, REGN 10%, LLY 13%
Why that's bullish for biotech, not bearish for it:
- The hole is too big to invent your way out of in the window. Nobody replaces $200bn+ organically by 2030. The gap closes with BD/M&A. Full stop.
- The deadline is fixed. Unlike every other M&A cycle, LOE dates don't slip with sentiment or rates. Boards can defer a deal a quarter; they can't defer Keytruda 2028.
- Buyers are price-insensitive at the margin. A 60-80% premium on a $5bn asset is rounding error against a $30bn revenue cliff. That's why deal multiples hold even in soft tape.
- Supply is cheap. SMID biotech has spent three years de-rating on rates and funding; a large slice of the universe still trades near/below cash-adjusted book with clinical optionality unpaid-for.
- Dispersion tells you who's forced. MRK/AMGN/BMY/PFE are structural buyers. The low-exposure names (VRTX/LLY/REGN/ABBV) are the ones who can sit out — and they're mostly not sitting out either.
Positioning: own the supply, not the cliff. SMID with de-risked Ph2/3 assets in the therapeutic areas the exposed names actually need. XBI as the beta wrapper, single names for the alpha.
Risks to flag: policy (MFN, IRA pill-vs-biologic asymmetry), FTC posture on large-cap deals, and pharma choosing buybacks over BD. Rates still set the funding window for the sellers. But none of those move the LOE dates — worst case they change how the gap gets filled, not whether.
