By Manas Mishra

(Reuters) – Drugmakers including Merck & Co, AstraZeneca (NASDAQ:) Plc and AbbVie Inc (NYSE:) said on Thursday they are open to acquisitions and reported a ramp up in research and development spending as the industry’s larger players look for new sources of future revenue.

Several top drugs such as AbbVie flagship Humira have begun to face competition from new rivals or are expected to lose patent protections in the next few years, and deals could be a quick fix to address the loss of revenue from older therapies.

Merck recently announced a $10.8 billion deal to buy Prometheus Biosciences Inc.

Chief Executive Robert Davis said that deal does not change the company’s business development strategy.

“We’re focused on building the pipeline, both near and long term, and we do deals across the full spectrum,” he said.

Sales of Merck’s cancer immunotherapy Keytruda will start losing patent protections in 2028. Meanwhile, it has become the world’s top selling prescription drug with first-quarter sales of $5.8 billion, exceeding even analysts’ lofty estimates.

A drop in valuation of smaller U.S. biotech companies from pandemic-highs has made deals more attractive, and the collapse of top venture debt provider Silicon Valley Bank (SVB) is expected to worsen a funding drought for those companies.

“It’s certainly more difficult to raise money for a biotech company. So it probably makes them a bit more willing to engage with players like us,” said an AbbVie executive during a call to discuss first-quarter results.

AbbVie on Thursday reported sales that missed estimates for most treatments, including its blockbuster arthritis drug Humira and its shares plunged more than 8%.

Humira’s U.S. sales fell 26.1% in the quarter to $2.95 billion as it faced its first biosimilar competition from Amgen Inc (NASDAQ:), and AbbVie forecast a steeper erosion in Humira’s market share in the second quarter.

Like Merck, AstraZeneca continues to reap the rewards of patent-protected cancer therapies for now.

AstraZeneca beat first-quarter estimates as sales of Imfinzi and strong demand in China helped soften the hit from falling sales of COVID-19 drugs.

The Britain-based drugmaker re-emphasized its focus in China, aiming to seize the opportunity to treat patients as the country bounces back from a protracted period of COVID restrictions.

In the last few months, AstraZeneca signed three licensing deals with Chinese companies, said CEO Pascal Soriot, adding that more, possibly larger moves are being contemplated.  

“We definitely could make acquisitions. There is no limitation to this,” Soriot said.

R&D SPENDING RAMPS UP

Most drugmakers reporting on Thursday beat Wall Street estimates for first-quarter earnings, while Eli Lilly (NYSE:) and Co missed mainly due to higher costs.

“You gotta spend money, to make money!,” BMO Capital Markets analyst Evan Seigerman said of Lilly’s results in a research note.

Research and development (R&D) costs at other drugmakers also rose in the quarter.

Merck, for example, reported a 66% jump in R&D costs, attributing about $1.2 billion to a charge from its acquisition of Imago. AstraZeneca’s R&D spending rose 22% in the quarter.

GFX: Drugmakers ramp up R&D spending https://www.reuters.com/graphics/HEALTH-PHARMACEUTICALS/znpnbnanwpl/chart_eikon.jpg

Share movements were mixed on Thursday. Eli Lilly’s shares rose 2% after it raised its annual revenue and profit forecasts on demand for its closely watched diabetes drug Mounjaro, which is being used off-label as an obesity treatment.

Merck’s shares were down 1.5% in midday trading, while shares of Bristol Myers (NYSE:) Squibb fell 1.2% after it missed first-quarter sales estimates.