Shocks to the system.

(From Legal Week)

Byline: Staff

The pharmaceutical industry is going through a turbulent period. Patents protecting companies' blockbuster drugs are expiring - according to consultancy firm Evaluate Pharma, around half of the $383bn (GBP255bn)-worth of patented drugs sold worldwide last year will lose patent protection in the next five years - while barriers preventing makers of generic drugs from selling their own versions of leading products continue to fall.

During its recent investigation into the pharmaceutical industry, the European Commission (EC) questioned 'pay for delay' deals in which large pharmaceutical companies pay generic drugmakers to delay launching copies of drugs coming off patent. Across the Atlantic, the US Federal Trade Commission has called for such deals to be curbed.

The effect has been a dramatic lowering of drug prices worldwide, with less money available to spend on the development of new products as a result. Management consultant Bain & Co estimates that annual cashflow of about $30bn (GBP20bn) - roughly half of the $60bn (GBP40bn) spent annually on research and development (R&D) by the industry - will evaporate in the next four years as patents on blockbuster drugs expire.

Major pharmaceutical companies have responded with a wave of mega-mergers and restructurings as they bid to cut costs and bolster their R&D arms. First came Pfizer's $68bn (GBP45bn) acquisition of Wyeth last January, followed soon after by Merck's $41bn (GBP27bn) merger with Schering-Plough and Roche's $47bn (GBP31bn) tie-up with Genentech.

"Big snakes swallowing huge chunks of Edam" is how Karolyn Fletcher, UK legal chief at Bristol-Myers Squibb (BMS) and head of the Association of the British Pharmaceutical Industry, describes the deals. The mergers will see 20,000 jobs go across Pfizer and Wyeth (a total staff reduction of 15% of the combined company's workforce of 130,000) and 16,000 at Merck and …