Recent figures show that the global generics market grew by 20% in 2005 – three times the amount by which the pharma sector grew, and four times the growth of patented drugs. In fact, Cygnus predicts continued growth for the sector in the next five years, forecasting a CAGR of 13.62% for 2006-2010.

Analysts have identified the patent expiries of some of the pharmaceutical industry’s biggest brands as the main catalyst for success for the generics sector. Datamonitor has warned that drugs worth almost $140 billion in sales will come off patent by 2016. This may be considered a conservative estimate. Elsewhere, experts predict that patents for branded pharmaceuticals with sales of over $100 billion will expire by 2010.

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Close examination of the pharmaceutical industry at present reveals a fairly troubled patient. The symptoms have gradually been deteriorating; drug development costs are soaring, R&D pipelines have yielded limited returns resulting in a steady drop in the number of product launches, and generic competition has intensified. At the same time, patent expiries have hit hard, with more pain to follow soon. In addition, the global healthcare market has shifted, with emerging stakeholders – most notably patients and payers – assuming greater importance and forcing pharma to take a different approach. With global healthcare budgets under the microscope, pharma is under intolerable pressure to reduce the cost of its medicines.

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Global Mergers and Acquistions (M&A) activity reached record levels for the first half of 2007. Recent data from Dealogic has revealed a 50% surge in activity, with deals totalling some $2,780 billion. KPMG, meanwhile, has warned that, as the credit markets continue to struggle, the M&A frenzy is set to peak and the volume of deals will slow. So what does this mean for the cash rich, global pharmaceutical sector, which itself underwent frenzied M&A activity around the turn of the century but has subsequently slowed down?

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