Drug makers often sign CDMO renewals before they know when generics arrive

In the fourth quarter of 2025, Novartis booked $1,253 million in Entresto net sales, a 43% drop from $2,180 million in the same quarter a year earlier. The company attributed the fall to generic entry in the US in the third quarter of 2025.

The contract runs on a fixed calendar, but the patent estate's calendar keeps moving. The two calendars rarely match, and the contract usually closes first. DrugPatentWatch calls the result "negotiating blind."

A fixed contract against a moving patent estate

Most CDMO contracts set an initial term of fixed length and then renew automatically unless a party gives notice within a set window. According to DrugPatentWatch, the actual entry date depends on whichever barrier is the last to fall, and a settlement can pull that date ahead of the last patent. A sponsor can have the Orange Book expiry date in hand and still lack the date that matters. If a renewal arrives while the generic entry date is still uncertain, the sponsor locks in volume and price with no clear view of when sales will fall.

Long patent tails are nothing new. BioPharm International set out in 2005 how later patents on new formulations and uses are filed to extend a drug's commercial life, and that is how an estate ends up with expiry dates spread across a decade. A procurement team can't tell from the list alone which of those dates will hold.

Volume commitments outlast brand pricing

In the two agreements DrugPatentWatch reviewed, both made public through SEC filings, the sponsor carries most of the risk. One sets a minimum number of batches per contract year. The other has a binding purchase obligation backed by a shortfall payment. Neither commitment shrinks when generics arrive. If brand demand falls, the sponsor still owes the batches or the payment.

Taken together, the two findings suggest the minimum-batch number is the clause most exposed to a wrong guess about entry timing. That number was usually sized when the brand had the market to itself. If the contract outlives exclusivity, the sponsor is paying for brand-era volume in a market priced like a generic one.

Leaving takes longer than the warning

The cost of an exit sets the timing problem. Tech transfer to a new site starts 12 to 18 months before the first GMP batch there. A site change also needs a prior approval supplement, and FDA reviews those in four months in the general case. Moving a commercial product to another manufacturer or a second source is a project measured in quarters.

Put that next to two-year automatic renewals and the squeeze is clear. A sponsor that wants to resize or move before generic entry may have to commit to the move more than a year ahead, often before a settlement date is public. If it misses a notice window, the existing terms can roll into another two-year term. DrugPatentWatch's phrase for this is that the contract usually closes first.

Where the entry date can enter the deal

Gerry Kennedy, commercial and IP partner at Keystone Law and formerly of Lonza, developed a contract negotiation framework with PharmaSource. It settles all commercial terms, such as pricing, batch quantities, cancellation and capacity, in a plain-language term sheet on days 7 to 21, before any legal template is introduced. Once the term sheet is agreed, legal teams translate those terms into the DMSA. The target is a maximum of two to three mark-up cycles in that phase, with signature by weeks 8 to 12.

Batch quantities, cancellation and capacity are exactly the terms a shifting entry date would change. That makes the term sheet the natural place to test them against more than one entry scenario, while they are still business points and not yet legal drafting. Kennedy also advises small biotechs to work from the CDMO's own template with specialist legal help, provided the contract explicitly protects them against being deprioritized for larger customers.

According to an expert column in Contract Pharma on IP in CDMO agreements, CDMO customers often ask for a license to the CDMO's background IP so they can move manufacturing of their product to another contract manufacturer. The column also explains what it calls a "springing" license. This is a limited license to a CDMO's background IP, and it takes effect only when specific conditions occur, for example a lack of supply, capacity constraints or new market entrants. The column takes the CDMO's perspective. Even so, it indicates that contract rights can be linked to shifts in the market. Whether a sponsor can secure comparable triggers tied to volume or cancellation is something to be negotiated.

Who is exposed, and who isn't

The evidence has limits. Two contracts are not a market sample, and DrugPatentWatch notes that large parts of both are redacted. The settlement entry dates for Entresto and Januvia are confidential or don't appear in the documents it reviewed. For a product whose generic entry has already happened, or whose entry date is fixed and public, a renewal is an ordinary pricing negotiation. Nothing about it is blind.

The exposure sits with sponsors whose renewal or notice window comes up while the entry date remains unclear because patents were listed late, exclusivities are pending or settlement terms are private. DrugPatentWatch itself recommends verifying each date with the Orange Book, the court docket and the company's most recent filing before depending on it. Before signing, the sponsor should settle which of those dates the volume commitment is built on.