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Big Pharma's Looming Patents May Benefit One Biotech

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Pharma stocks took big hits in recent years as many of its largest companies saw a looming "patent cliff" that could dry out profits from their big cash-cow drugs. This may be good for smaller pharma companies like one stock, which was one of Chen Lin's top picks for 2024.

Pharma stocks took big hits in recent years as many of its largest companies saw a looming "patent cliff" that could dry out profits from their big cash-cow drugs.

By the end of the decade, patents on nearly 200 drugs will expire, affecting almost every major pharma company, PharmaVoice reported.

"Big-time drugs like Merck's Keytruda, Regeneron's Eylea, J&J's Stelara, Eli Lilly's Trulicity, and a trio of blockbusters from Bristol Myers Squibb — Opdivo, Eliquis, and Revlimid — will all lose patent exclusivity by the end of the decade," the report said.

There may be a silver lining for investors. This huge shift in the industry's bedrock could lead to shakeups as Big Pharma looks to replenish its pantries.

That could have a big benefit for smaller pharmas and biotechs like Aldeyra Therapeutics Inc. (ALDX:NASDAQ) which is in the process of getting dry eye drug reproxalap approved.

The Catalyst: Strong Year for Acquisitions

Eric Tokat, one of biotech's most prolific dealmakers, told STAT News that he believes 2024 will be another strong year for acquisitions.

"That's not idle speculation,"  Adam Feuerstein wrote for STAT on Monday. "It's perhaps as close a guarantee one can get in biotech."

"I'm not sure if we're going to have 23 deals or 25 deals, but I think it's going to be a good year," Tokat told STAT as the industry gathered this week at the J.P. Morgan Healthcare Conference in San Francisco.

Arrowhead Pharmaceuticals Inc. (ARWR:NASDAQ) Chief Executive Officer Christopher Anzalone said he feels the change, too, reported.

"I don't know if that means we are going to have the wind at our back in 2024, but it's feeling, increasingly, like at the very least we're not going to have the wind at our face," he told Investor's Business Daily. "Some of these incredible breakthroughs that we've seen over the last couple years . . . will start to take shape in 2024. It feels like a very important year for biotech."

Johnson & Johnson Buys Ambrx

On Monday, Johnson & Johnson announced it is paying US$2 billion for Ambrx Biopharma, a drugmaker targeting multiple cancers with drugs that seek out and kill cancer cells.

The drugs, called antibody-drug conjugates, or ADCs, are being described by researchers as "guided missiles" that can minimize damage to patients' healthy tissues.

Johnson & Johnson's top-selling drug, Stelara, used to treat psoriasis, is expected to face generic competition in 2025.

"Ambrx's pipeline and ADC platform present exciting future opportunities to deliver enhanced, precision biologics as we look to transform the treatment of cancer and improve patients' lives," Dr. Yusri Elsayed, the company's global therapeutic area head of oncology, said in a release.

Shares of Ambrx more than doubled Monday on the announcement.

The global biotech industry was estimated at US$1.37 trillion in 2022 and is expected to grow at a compound annual growth rate (CAGR) of 13.96% from 2023 to 2030, Grand View Research reported.

"Growing foothold of personalized medicine and an increasing number of orphan drug formulations are opening new avenues for biotechnology applications and are driving the influx of emerging and innovative biotechnology companies, further boosting the market revenue," Grand View reported.

Aldeyra Therapeutics Inc.

Aldeyra Therapeutics Inc. (ALDX:NASDAQ)

Last year, asset manager Chen Lin picked Soleno Therapeutics Inc. (SLNO:NASDAQ), in the fourth quarter here on Streetwise Reports. That stock went on to be the top gainer of the year as determined by Dow Jones Market Data.

streetwise book logoStreetwise Ownership Overview*

Aldeyra Therapeutics Inc. (ALDX:NASDAQ)

*Share Structure as of 1/4/2024

Soleno jumped 1,900% as it announced in the fall positive results for its diazoxide choline extended-release tablets to treat Prader-Willi syndrome. Prader-Willi syndrome is a rare genetic condition that can cause intellectual disability and obesity.

For 2024, Chen is turning back to biotechs and hoping to continue the streak.

"There are so many biotechs right now, even biotechs trading below cash," Chen said. "I think this area can have a spectacular year ahead of us."

Chen said he had heard rumors that the "M&A departments of Wall Street have been very busy on the holiday, with bankers working 80 hours a week because there's so much activity coming."

His top pick is Aldeyra Therapeutics Inc. (ALDX:NASDAQ), which is in the process of getting reproxalap approved.

The company signed an agreement with Big Pharma giant AbbVie last year to acquire a co-exclusive license to develop, manufacture, and commercialize the drug in the U.S. and an exclusive license outside of the country, Morningstar reported.

A generic version of AbbVie's own dry-eye treatment, Restasis, was approved in 2022.

Aldeyra's share price went up 50% on the news of the agreement with AbbVie over reproxalap last November. Chen said he expects reproxalap to be approved soon. 

"That's one of the opportunities I'm looking at in biotech," Chen said.

Ownership and Share Structure

According to Reuters, Aldeyra is 61% owned by institutions and 2% owned by strategic investors. The rest, about 37%, is retail.

Top investors include Perceptive Advisors LLC with 14.09%, Knoll Capital Management LLC with 6.11%, The Vanguard Group Inc. with 5.4%, State Street Global Advisors (US) with 5.21%, and BlackRock Institutional Trust Co. with 5.2%.

It has a market cap of about US$197.64 million with 58.82 million shares outstanding. It trades in a 52-week range of US$11.97 and US$1.42.

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Important Disclosures:

  1. [Steve Sobek ]wrote this article for Streetwise Reports LLC and provides services to Streetwise Reports as an employee.
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  3. This article does not constitute medical advice. Officers, employees and contributors to Streetwise Reports are not licensed medical professionals. Readers should always contact their healthcare professionals for medical advice.

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