In this episode of Motley Fool Hidden Gems Investing, Motley Fool contributors Tyler Crowe, Matt Frankel, and Lou Whiteman take a dive into what’s driving the merger-and-acquisition frenzy, including:
- Big pharma is using big wallets for M&A.
- Who’s at risk of running off a patent cliff?
- Regulatory changes are adding fuel to the fire.
- Companies that are doing great for patients (and investors).
- Mailbag: Is Pfizer OK?
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A full transcript is below.
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This podcast was recorded on June 23, 2026.
Tyler Crowe: Big pharma is in a buying mood today on Motley Fool Hidden Gems Investing. Welcome to Motley Fool Hidden Gems Investing. I'm your host, Tyler Crowe, and today I'm joined by longtime Fool contributors, Lou Whiteman and Matt Frankel. Now, it's Tuesday. I know the market. It's down quite a bit, I think, Nasdaq's down about 2% as we are taping. But hey, you know what? Volatile times. Markets are going to market.
Today, we're going to dive into the pharmaceutical industry and specifically the seemingly large wave of M&A that we've seen in recent months. We're also going to hit some mailbag questions specific to the pharmaceutical industry and look at some of the companies in this industry that we think are doing incredibly well. Now, at first, I thought this was some weird coincidence of seeing several deal announcements in the deal section of the Wall Street Journal recently, but so far, 2026 has been a banner year for M&A in the pharmaceutical industry. Here's a fascinating stack, guys, on this wave. So far this year, there have been more deals of $1 billion and more than all of 2025. Now, I'm sure there's lots of reasons we could go into a lot of them, but for each of you guys, what are some of the things that you're seeing that's driving this seemingly massive wave of consolidation, Lou?
Lou Whiteman: There's always a lot of reasons, as you say, but I do think there are a lot of trends just converging right now to fuel this consolidation. First, we have a looming patent cliff all over the industry. Pharmaceutical patents last 20 years. But because most of that time, usually more than half of that time is pre-revenue, the drug development stage, there's only really a short window for these companies to profit off of their creations, and as soon as it goes off patent, which means people can compete with you on this drug, you tend to see the revenue just drop orders of magnitude. There's an estimated $300 billion in annual revenue coming off patent in the next few years. That's prompting a lot of companies to either find bigger partners or if you're big enough, find new revenue streams. Hence, the M&A.
Look at Eli Lilly. They're a GLP-1 leader. They have a great portfolio. They are throwing all of the cash they're making into GLP-1s into a ton of deals, just trying to diversify their portfolio. Nature of biotech and pharmaceuticals is a lot of these won't work out, but if you cast your net wide enough, if you get good candidates, you might have the next big thing. Add in factors like regulatory pricing pressure, some interesting breakthroughs in areas like oncology and cardiology, this is an attractive market for both buyers and sellers, and I think we're seeing it play out.
Matt Frankel: You're right, Tyler. It has been a very active year for consolidation, just to add a little bit of context to that. We've already seen 32 separate deals worth $1 billion or more for a total deal value of $123 billion, and that's significant because if this continues, it would be the strongest year for M&A in the space. It's 2019, which was the strongest year ever. We're on pace for not quite a record year, but we're getting there.
Lou mentioned patent expiration is a big part of this. Almost 70 drugs that each generate over $1 billion of revenue have their patents expiring within the next couple of years. If you're not familiar, when their exclusivity period ends, it's not just that the revenue falls off a cliff. It really falls off a cliff. It could drop 80 to 90% overnight. Many companies are scrambling not only to replace the revenue, but the profits these are generating because generally, the patent-protected drugs are the highest margin part of these companies’ balance sheet.
One interesting observation is, as we mentioned, these are not giant acquisitions. There's been a shift to bolt on acquisitions from large mergers, focusing on assets that are saying late stage trials that could be integrated quickly into an established platform. That's one of the Eli Lilly acquisitions we just saw. Merck is another example. It's losing its patent protection for Keytruda, the blockbuster cancer drug, and it's made three major acquisitions in the last 10 months alone. You're seeing a lot of this from certain companies.
Tyler Crowe: It's not just them. Part of the reason I specifically saw this was in a matter of a couple of weeks, I saw, ABBV buying immunology company for about 10 billion. Glaxo Smith Klein was doing a $10 billion acquisition, and then Roche was even licensing drugs from other people. Mentioning Eli Lilly and Merck as well. It seems like everyone is incredibly active at this time, especially in the portfolio of developing drugs.
That's what I want to dig into a little bit deeper here. It's the regulatory part because it does look like there has been significant changes, at least in attitude in the FDA in recent months. Earlier, I think in the past couple of months or so, they basically reversed three decisions that were related to the treatments for rare and orphan diseases and we could get the long part, but the short version of is under the former FDA vaccine and biotech drug division leader, his name was Vinay Prasad, basically these drug candidates were rejected because the clinical study did not include comparisons to a placebo.
Now, placebo studies, they're not nearly as common and almost are pretty much unheard of in the rare disease area because one, the populations of these are so small, and two, there's off for life-threatening diseases. There's a very challenging almost ethical thing to saying we're going to put you on placebo. Look, I don't think it's a coincidence that we're seeing this rush to acquire clinical stage treatments, especially in oncology, rare diseases, a lot of those things that sometimes have a hard time getting through the FDA, at the exact same time that the FDA has signaled it's being more amenable to working with the industry lately.
Lou Whiteman: You're right. The placebo study method is not very practical or ethically defensible for rare diseases. After Prasad's departure, the FDA made it clear that they agree with that. Earlier this year, they issued some very significant policy updates, including a framework for sponsors of ultra-rare disease therapeutics to use alternative methods to build their approval cases as opposed to the placebo method. For a while, the regulatory environment essentially froze the market for these clinical-stage companies that were developing these rare disease treatments. It was perceived as if their development suddenly faced a moving target. With the FDA's recent reversals that you mentioned, those types of drug programs become immediately more valuable, and some are still marked down from what you would normally see them sell for, and you're seeing that help fuel the buying frenzy also.
Tyler Crowe: We were discussing this. Maybe it was back in January, maybe February, where there was this quote from the CEO of Moderna because they were trying to get a new combination COVID flu vaccine through. Basically, the CEO came out rather bluntly and was like, I don't even know if it's worth it to do clinical trials on vaccines right now because of the regulatory burden because, Lou, one thing that companies hate more than regulations is constantly moving and changing regulations.
Lou Whiteman: Especially in a business like this where you're spending so much on these trials and so much time in development for what is already a low success rate. If you start changing the targets and changing the game mid-game in a business where you already have huge failure rates, it's just going to create chaos. I love what we're doing here, but as an investor, I think it's worth noting that there's a needle-mover problem. By their nature, often drugs don't have a huge audience, and even at high prices, they're not massive revenue generators. It's more than just the common good. I'm definitely glad they're working on them. But the reason why they chase the blockbusters is, at the end of the day, it's the blockbusters that's solving these huge problems, whether it's cancer, whether it's heart disease. That's where you really move the needle.
Tyler Crowe: Coming up out for the break, we're going to take a look at the big pharma, what's doing well, what's not, and maybe uncover some of the hidden gems, perhaps in the pharmaceutical industry.
Guys, one of the perceptions of the pharmaceutical industry, or big pharma, by its big scary name, is that it's a relatively safe industry that's going to probably churn out cash for years on end. Many of the largest pharma companies are even known as large dividend payers that have been doing it for a long time. But I was doing a little bit of testing that theory this morning, and over the past 10 years, the results have not been as great as the industry's reputation. I think of the dozen largest pharma companies worldwide, only three have actually beaten the S&P 500 over the past decade. Granted, we have had a fantastic past decade for the S&P 500. It's a pretty high hurdle. Even Novo Nordisk, which at the time, for a short period, there had basically the monopoly on the GLP-1 drug market with Ozempic and some of its other treatments. It's now significantly trailed the market over the past 10 years as competitions come in, like Eli Lilly, as you mentioned.
But what's that old addage past performance doesn't necessarily guarantee future results. I want you guys to think about if we're looking at the pharmaceutical industry right now, who do you see as doing great and doing some work that really is needle-moving to your point, Lou, about some things doing well, some things actually as an investor, moving the needle, and some you're not necessarily certain about.
Lou Whiteman: Let's be honest, this is a terribly brutal industry. I would hate to buy an ETF for this industry and just track it. You really have to find individual winners who are in the right space here because with the costs, with the regulatory burden, it is hard for this industry to really deliver as a group over time. As far as who those gems might be, as I mentioned, Eli Lilly is driving a lot of consolidation. I don't think there's a better run big pharma right now, and I love that they are investing in their future, investing even beyond GLP-1s. I remember when statins were the miracle drug, and look, it was a great benefit to humanity, and it was a moneymaker for a while, but even statins didn't last forever. I love Lilly as looking past today. Lilly's boring, though.
If you want to dig down deeper, I want to give some love to United Therapeutics, ticker UTHR. This is a wreck in hidden gems and a number of services that has easily beaten the market in the last few years. Great story here, founded by Martine Rothblatt who also founded SiriusXM, real entrepreneur. Her daughter was diagnosed with a lung disease, her frustration of treatments and seeing, I guess, a market opportunity there. She's built this out. They have six FDA-approved treatments, a robust pipeline, just a great business run by an entrepreneur with a real cause driving her. Really interesting company.
Matt Frankel: I would second Eli Lilly as the one that's doing great. I can't think of one that I would rather mention. It does depend on its Tirzepatide, which is its version of GLP-1. Those are the Mounjaro and Zepbound brand names for more than half of its revenue. These are patented through 2036, and so Lilly has one of the most favorable patent-cliff exposures in the space. Even its next-generation GLP candidates are making excellent progress through the pipeline. As Lou mentioned, the company is wisely using its cash flow to make bolt-on acquisitions and gradually diversify away. Hopefully, in 10 years when the patent does expire, they're not just scrambling to do something. Speaking of scrambling to do something, I mentioned Merck earlier, and that's the one that I'm less certain about. The company has been extremely active in M&A. I mentioned three big deals in the last 10 months. But Keytruda makes up more than half of its revenue, and that patent goes away in 2028. The aggressive deal-making could work out, but that tight timeline, it really leaves little room for error.
Tyler Crowe: I want to interject myself here as well. Because it's the World Cup, and I feel like this actually ties into a fun World Cup story that maybe not everyone knows about, but everyone's heard the name Lionel Messi, probably one of the greatest footballers of all time. As a kid, he actually had a rare disease is basically where the glands that produce human growth hormones were not proficient, and he had to go on human growth hormones for much of his young life, and it's part of the reason he played for Barcelona because they were willing to pay for this very expensive treatment. It was a daily injection of synthetic growth hormone. It's an extremely burdensome thing for people who have this rare disease and other diseases associated with endocrinology problems that they have to do these daily injections because things like synthetic growth hormone lives for a very short amount of time in your body. The company here is Ascendis Pharma. The ticker is ASND, and this is a company that's been building what are called transconor. There's some very technical terms here. I'm trying to keep it as layman as possible. I apologize for you much more scientifically inclined people listening to this, but trying to do this for the layman's terms. It's called transient conjugation.
Look, to give the best similes I can, it's basically a time-release capsule in your blood. The idea is you would do an injection of something like a synthetic growth hormone with what is basically these inert proteins that will decompose on set times and basically act as a time-release capsule. You could take something that has been a very burdensome daily injection of human growth hormone and stretch it out to maybe even a weekly or once every two weeks thing. It's getting a lot of traction for a lot of types of specific drugs that have very short time in the bloodstream or can be processed out of the body in any particular way. It's very interesting. It's doing a lot of stuff, like I said, with endochonolog, and it's also starting to develop an oncology platform, as well. Again, we've been talking about a lot of M&A. This really feels like one of those companies where it's not just the drug itself, but also some of the technology behind it that you could easily see one of the big pharma companies jumping in and grabbing it. Coming up after the break, maybe one of the companies that might want to grab it as we get into one of the giant pharmas in particular.
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Tyler Crowe: Hey, everyone, quick reminder, if you want to get a question asked to us, we love having them as much as we can. Go ahead, email us at podcasts@fool.com. That's podcasts with an s @fool.com. The only three rules we always have when we ask is No. 1, keep it Foolish. Two, keep it short enough we can read on air, and three, try not to ask it in a way that is personalized advice. That's one thing that we cannot do, or the SEC might say, Hey, you guys shouldn't be doing that.
Today's question comes from, I hope I say this right, Ryno Coetzer. I'm from Namibia, a small country in Southern Africa. You should totally come and visit, and I can confirm this is me speaking, my wife and I did an incredible trip there several years ago, Etosa and Sossusfly, everything that they say that it is. Beautiful place. Now, here's back to Ryno's question. I want to know what is your view of Pfizer for the long term with a price that it has, and it's been a pretty significant price drop. Thanks, Ryno.
We talked about this earlier. A lot of these companies’ patent cliffs, paying dividends. If you look at Pfizer right now, it's one of the highest dividend payers in the industry, but at the same time, a lot of patent cliff problems.
Lou Whiteman: They are poster boy for this. By the way, my wife did that trip with Albi and had all the same great thoughts, so I'm jealous that I've never been, but I hope to get there eventually.
Tyler Crowe: As for Pfizer, they have Prevnar, a vaccine against pneumonia is coming off this year. Two big cancer drugs are going to follow in 2027, and they don't have a clear next big thing on the horizon. They've run into some troubles with what they hoped would be the next big thing. The good news here is they do have a massive pipeline, especially in oncology. I think that they will be fine, but it's going to take some time to pay off. If you are a patient investor, Pfizer could be a winner here because you do get that dividend yield, and you have a single-digit forward price earnings ratio. That's pretty affordable. But with the patent cliffs coming, this could get worse before it gets better. I get the intrigue, but I'm in no rush to jump in here. I think you have plenty of time to wait this one out.
Matt Frankel: Lou just made a very gentle bear case, but I'm going to take the other side of it. Just to add a little bit of context here, because I mentioned Merck earlier. Pfizer's near-term patent expirations are expected to cost a total, all the ones that Lou mentioned, a total of about $17 to $18 billion in annual revenue out of more than 63 billion. It's not like they're losing half of their revenue right away. What they are going to keep, it will be more than enough to continue to pay their dividend. It'll keep the company profitable. Management has specifically already called out the bumpy years ahead. These are priced into the stock at this point, in my opinion. Lou's correct.
The oncology pipeline could be a big future growth driver. They're getting into the GLP-1 space. They made a $10 billion acquisition of Metsera. That could be a big driver of future growth. But even under an optimistic scenario, Pfizer's own guidance says it's going to be at least 2029 before we see a return to growth due to that pipeline. The company's current portfolio, it creates a nice revenue floor. It's got a nearly 7% dividend yield, which can really reward you for your patients because that's a really nice yield on cost. I would take the other side and say that I’d be a buyer of Pfizer as we approach what I would call their in-between time, but really only because I have a five-year time horizon. There's my gentle bull case, and Lou gave his gentle bear case. We're more aligned than it might sound.
Tyler Crowe: I think we just came up with the next great name for a Motley Fool podcast, The Gentle Bear podcast featuring Lou Whiteman. I love it. We could get into the details of it, but that is all the time we have for today. Matt, Lou, thanks for sharing your thoughts. I'll hit the disclosure, and we'll get out of here.
As always, people on the program may have interest in the stocks they talk about, and The Motley Fool may have formal recommendations for or against. Don't buy or sell stocks based solely on what you hear. All personal finance content follows Motley Fool Editorial standards, and it's not approved by advertisers. Advertisements are sponsored content and provided for informational purposes only. To see our full advertising disclosure, please check out our show next. Thanks to our producer Bart Shannon and the rest of The Motley Fool team. For Lou, Matt, myself, thanks for listening. We’ll chat again soon.
Lou Whiteman has no position in any of the stocks mentioned. Matt Frankel, CFP® has no position in any of the stocks mentioned. Tyler Crowe has positions in Ascendis Pharma A/s. The Motley Fool has positions in and recommends AbbVie, Ascendis Pharma A/s, Eli Lilly, Merck, Moderna, Novo Nordisk, Pfizer, and United Therapeutics. The Motley Fool recommends GSK and Roche Holding AG. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
