Biosimilars in Oncology: Alvotech and Dr. Reddy's Race for Market Dominance

The $29.5 billion in global sales generated by Merck's Keytruda (pembrolizumab) in 2024 underscores its dominance in immuno-oncology. Yet, its patent expiry in 2028 looms as a catalyst for disruption. Into this space steps a strategic partnership between Alvotech (ALVO) and Dr. Reddy's (RDY), two firms poised to capitalize on the $29.5B market by jointly developing a biosimilar. This collaboration exemplifies how synergies in R&D, manufacturing, and commercialization can unlock value in one of the highest-potential sectors of pharmaceuticals: oncology biosimilars.

The Catalyst: Keytruda's Patent Expiry and Market Dynamics

Keytruda's patent expiry in 2028—coupled with the Inflation Reduction Act's price negotiation provisions starting in 2026—will erode Merck's (MRK) sales, which are projected to drop by 19% to $27.4 billion by 2029. The biosimilar space is uniquely positioned to accelerate this decline. Unlike generic drugs, biosimilars require significant R&D investment but offer cost savings of 20–40% compared to biologics. For Alvotech and Dr. Reddy's, the partnership lowers the risk of this high-stakes, capital-intensive endeavor while amplifying their global reach.

Strategic Synergies: R&D, Costs, and Global Reach

The collaboration's core strength lies in its combined expertise:
- Alvotech's R&D and Manufacturing: Alvotech, a biosimilar specialist with two approved products (Humira and Stelara), brings a streamlined pipeline and integrated facilities. Its “one-stop-shop” model reduces development costs by 20–30% compared to traditional outsourcing.
- Dr. Reddy's Commercialization and Oncology Focus: Dr. Reddy's has six biosimilars on the market, including Versavo (bevacizumab) and pegfilgrastim, and a 25-year track record in global oncology distribution. Its manufacturing expansion and regulatory know-how in markets like the U.S. and EU complement Alvotech's capabilities.

By sharing R&D costs and splitting commercialization rights (excluding certain territories), both companies reduce financial risk while accelerating time-to-market. This is critical in a race where first-movers often capture 50–70% market share within three years.

Oncology Biosimilars: A Growth Engine with First-Mover Rewards

The oncology biosimilar market is projected to grow at a 12% CAGR through 2030, driven by aging populations, rising cancer incidence, and regulatory pushes for cost containment. Keytruda's broad label—approved for over 30 indications, including lung, skin, and head/neck cancers—makes its biosimilar a “category killer” in this space.

First-mover advantages here are significant. For instance, Sandoz's Zarxio (a filgrastim biosimilar) captured 60% of the U.S. market within two years of launch. Alvotech and Dr. Reddy's aim to replicate this by leveraging their combined strengths to meet regulatory hurdles swiftly.

Stock Implications: ALVO and RDY as Value Creators

For investors, the partnership aligns with two compelling narratives: cost efficiency and market diversification.

Alvotech (ALVO):

• Pipeline Boost: Adding Keytruda to its nine-candidate pipeline strengthens its position in high-value oncology biosimilars.
• Financial Leverage: Shared R&D costs could reduce ALVO's burn rate, improving its cash runway.
• Valuation: ALVO's current $1.2 billion market cap lags behind peers like Samsung Bioepis (which commands a $5.5B valuation). A successful Keytruda biosimilar launch could narrow this gap.

Dr. Reddy's (RDY):

• Oncology Focus: This deal deepens RDY's oncology portfolio, a strategic priority for its $2.1 billion biosimilar division.
• Geographic Expansion: ALVO's EU and U.S. partnerships complement RDY's strengths in emerging markets, creating a truly global footprint.
• Valuation: RDY's $14.3 billion market cap is under pressure as generic sales decline. A Keytruda biosimilar could reinvigorate growth, with oncology biosimilars potentially contributing $2–3 billion in annual revenue by 2030.

Risks and Considerations

The path is not without hurdles. Delays in regulatory approvals (e.g., FDA or EMA) or patent challenges from Merck could delay commercialization. Additionally, competition—such as from Samsung Bioepis or Amgen—remains fierce. However, the partnership's combined resources and first-to-file potential mitigate these risks.

Conclusion: A Strategic Play for Long-Term Value

Alvotech and Dr. Reddy's collaboration is a masterclass in strategic alignment. By pooling R&D, manufacturing, and commercialization resources, they aim to dominate a $29.5 billion market at a critical inflection point. For investors, this partnership positions both firms to capitalize on the oncology biosimilar boom, with ALVO offering growth potential and RDY providing stability.

Investment Takeaway:
- ALVO: Buy for high-growth exposure, targeting a 30–40% upside if the Keytruda biosimilar gains 30% market share by 2030.
- RDY: Hold for its diversified portfolio, but watch for catalysts like FDA approvals in late 2027–2028.

In a sector where speed and scale matter most, this duo is well-positioned to turn Keytruda's patent expiry into a windfall for shareholders.