Big Pharma Is Spending Its Earnings Beats on Deals. Here's Why It Can't Afford to Stop

Big Pharma's bestselling drugs are bringing in billions, but replacing them is getting expensive. Eli LillyLLY, MerckMRK, and Bristol Myers SquibbBMY all beat third-quarter expectations on Thursday, yet acquisition and licensing charges weighed on profits as the industry prepares for a wave of patent expirations.

Strong sales, expensive deals

Lilly reported third-quarter revenue of $24.4B, beating Wall Street's $22.61B estimate, while adjusted earnings of $7.48 per share topped expectations of $6.26.

Merck brought in $18.09B, up 5% from a year earlier and ahead of forecasts. Bristol Myers also exceeded estimates, with revenue rising 7% to $13.07B and adjusted earnings reaching $1.35 per share against $1.09 expected.

All three recorded charges tied to acquisitions or licensing agreements. Those expenses weighed on reported profits despite strong underlying sales, highlighting how much drugmakers are spending to secure future growth.

Lilly's obesity business keeps delivering

Lilly's weight-loss treatments remain its biggest growth drivers. Mounjaro generated $10.72B in quarterly sales, up 65%, while Zepbound contributed $5.35B, a 49% increase.

The company controls roughly 63% of the US obesity and diabetes drug market, compared with Novo Nordisk'sNVO 36.6%. Its newer obesity pill Foundayo was a weaker spot, generating $184M against expectations of $229M.

Strong demand prompted Lilly to raise its full-year revenue forecast to $91B–$92B from $85B–$87B. However, adjusted earnings guidance fell to $35–$36 per share after $4.57 per share in acquired research charges tied to deals including AtaiBeckley and Curevo.

The charges outweighed a $4.07 improvement in underlying earnings, showing how acquisition spending can offset otherwise strong operating performance.

Meanwhile, Medicare's GLP-1 coverage pilot, launched in July, could support further demand.

Lilly's advantage is that its existing obesity franchise generates enough growth to help finance the next generation of treatments.

Merck faces a patent deadline

Merck's biggest challenge is protecting revenue from Keytruda, its blockbuster cancer treatment. Quarterly sales reached $8.60B, beating expectations of $7.73B. That included $830M from Keytruda Qlex, an injectable version administered under the skin.

Keytruda's patents begin expiring in 2028, exposing the franchise to cheaper competition. Merck hopes shifting patients to Qlex will help preserve sales after the original treatment loses exclusivity.

Other products are gaining ground. Winrevair, a treatment for a rare lung condition, generated $694M, up 93%, while Gardasil brought in approximately $2B.

Merck raised adjusted earnings guidance to $2.77–$2.82 per share despite a $400M licensing charge involving Chinese cancer drugmaker SciBrunch.

Bristol Myers faces similar pressure. Its Growth Portfolio increased revenue 12% to $7.7B, compared with just 1% growth for legacy medicines. The company raised its revenue outlook, although deal-related adjustments reduced full-year earnings guidance by $0.60 per share.

Both companies are expanding their newer drug portfolios, but replacing established blockbusters remains a substantial challenge.

Why the acquisition rush isn't slowing

An estimated $300B–$400B in branded pharmaceutical sales could lose patent protection by 2035, pushing drugmakers to acquire promising treatments before existing revenue streams weaken.

Deal activity has accelerated since 2025, particularly around high-growth areas such as obesity. The GLP-1 market is estimated at $97B in 2026 and could approach $148B by 2030.

Healthcare stocks have also been recovering, supported partly by US drug pricing agreements that proved less restrictive than investors feared.

Gilead SciencesGILD is the next earnings test, with Wall Street expecting adjusted earnings of $2.21 per share on $7.81B in revenue. Acquisitions of Arcellx, Tubulis, and Ouro have reduced its cash holdings from $10.6B to $3.2B.

What investors should watch

Deal charges are complicating earnings comparisons, making revenue growth and newer drug sales more useful measures of performance.

Lilly stands out because its expanding obesity business can finance additional investments. Bristol Myers is also showing progress as its Growth Portfolio outpaces legacy medicines.

Merck carries greater uncertainty. Keytruda Qlex sales climbed from $463M in the second quarter to $830M in the third, but the company still needs to prove the newer version can protect revenue beyond 2028.

For investors, the distinction is between companies using strong growth to fund their next blockbuster and those spending heavily to replace one they are about to lose. The earnings beats are encouraging, but the next generation of drugs will determine which companies can sustain them.