Source: Flickr user Nguyen Hung Vu.

Although we're officially over the "patent cliff" -- the multiple year period when dozens of innovator drugs came off patent and were exposed to generic competition -- Big Pharma is far from out of the woods when it comes to long-term growth prospects. Many Big Pharma names are still dealing with languishing established drug sales, or are facing the prospect of ongoing patent losses (but perhaps not of the magnitude that we witnessed within the past couple of years).

Some Big Pharma names have the pipeline to look past potential patent woes and keep growing. One prime example is Johnson & Johnson (NYSE:JNJ), which announced earlier this year that it believed it could bring 10 new molecular entities to market by 2020 with the potential to produce $1 billion-plus in sales. Even with the prospect of rheumatoid arthritis blockbuster Remicade losing patent protection within the next couple of years, J&J's long-term growth prospects look strong.

However, other Big Pharma names don't appear to have as strong a long-term growth outlook following the patent cliff. Without making acquisitions, some could, plainly put, struggle to grow.

Here are two Big Pharma names that could be in need of acquisitions to drive growth in the coming decade.


Source: AstraZeneca. 

AstraZeneca (NYSE:AZN)
Among Big Pharmas with the most uncertain of futures, AstraZeneca has to rank toward the top of the list.

AstraZeneca is pretty much the only Big Pharma company with sales that are expected to contract over the coming five-year period according to Wall Street estimates. The culprit has been generic competition to blockbusters Nexium, a heartburn/acid reflux therapy, and Seroquel, a treatment for schizophrenia, to name a few. Its drop in sales has been somewhat offset with strength in diabetes sales. Needless to say, AstraZeneca is adrift without a sail or paddles at the moment, and it could certainly benefit from an earnings-accretive acquisition or merger.

What might make sense for AstraZeneca? Keeping in mind this is purely hypothetical, an acquisition to consider is Baxalta, the recently spun-off biopharma wing of Baxter International. Baxalta's therapeutic focus on oncology, immunology, and hematology would line up pretty nicely with Astra's therapeutic areas of focus (specifically oncology and immunology). While a buyout wouldn't come cheap, Baxalta would add more than $6 billion in top-line sales for AstraZeneca, should be immediately accretive to EPS, and could result in substantial synergy savings.

The other option is for AstraZeneca and GlaxoSmithKline (NYSE:GSK), which is also struggling, to consider a tie-up. Glaxo's respiratory portfolio and vaccines could possibly complement Astra's high-growth oncology and diabetes focus. However, with Glaxo selling off its oncology segment to Novartis earlier this year, the idea of these two companies combining now just doesn't seem as plausible as it did before Glaxo and Novartis' asset swap was announced.


Source: Pfizer. 

Pfizer (NYSE:PFE)
An acquisition is almost a certainty for Pfizer. With each quarterly conference call CEO Ian Read and his management team remind investors that M&A activity is critical to the company's future growth prospects. The only true unknown is the size of any future acquisition, although Pfizer is more than likely only going to make needle-moving purchases.

Pfizer has been weighed down by the loss of patents on cholesterol-lowering drug Lipitor, still the best-selling drug of all-time, and Celebrex, an arthritis drug that generated about $3 billion in annual sales. Plus, Pfizer is staring down the eventual loss of exclusivity on nerve-pain drug Lyrica, its second best-selling drug at the moment, within the next couple of years. Helping to offset some of these declines is Ibrance, an oncology drug designed to treat a certain type of breast cancer that could generate $3 billion to $5 billion in peak annual sales.

What company might be on Pfizer's radar (again, hypothetically speaking)? GlaxoSmithKline might make sense given that Pfizer and Glaxo are two global leaders in vaccine development. Additionally, Glaxo's respiratory portfolio could nicely complement Pfizer's cardiovascular and metabolic disease products. Plus, buying U.K.-based Glaxo could allow Pfizer to move its headquarters overseas to a lower corporate tax environment, resulting in substantial cost savings. What could stop this possible deal from materializing is that Glaxo's next-generation COPD and asthma therapies haven't sold as well as expected.

A wildcard idea that could be worth back-of-the-mind consideration is Isis Pharmaceuticals. Isis Pharmaceuticals and its antisense drug development platform would be a long-tail growth play (which could upset antsy Pfizer shareholders), but it has 30 ongoing clinical studies in many overlapping therapeutic fields with Pfizer, such as oncology, inflammation (where the two have partnered for EXC-001 as a treatment for scarring), cardiovascular, and metabolic diseases. The question mark here is whether Isis' multiple other partnerships could turn off a suitor like Pfizer.

Caveat emptor
M&A activity has been shown to drive stock prices and growth prospects higher in the healthcare sector, but it also comes with two words of caution: caveat emptor, or buyer beware. If a company overpays or overreaches for a rival, it could render the benefits of the purchase moot.


Source: Johnson & Johnson. 

Although it remains to be seen if it was a good buy or not, AbbVie's (NYSE:ABBV) acquisition of Pharmacyclics for $21 billion, or $261.25 per share, could be viewed as a major stretch.

The allure of the deal for AbbVie, other than diversifying its pipeline beyond its reliance on Humira, was to get its hands on blood cancer drug Imbruvica. Imbruvica offered impressive response rates in mantle cell lymphoma and chronic lymphocytic leukemia, and label expansion opportunities could see it producing up to $7 billion per year in sales.

However, Pharmacyclics shares its Imbruvica revenue and profits with Johnson & Johnson, meaning AbbVie doesn't have Imbruvica all to itself. It may also take another seven to 10 years before Imbruvica realizes its full potential. Unless Pharmacyclics' pipeline unearths a few more oncology gems, then AbbVie and its shareholders may regret the purchase of Pharmacyclics.

Long story short, M&A can indeed be a good thing, but you as the investor have to be diligent in analyzing whether a deal really makes sense.

Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.

The Motley Fool recommends Baxter International, Isis Pharmaceuticals, and Johnson & Johnson. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.