• The Financial Times, Thursday, May 8, 2008 10:19 AM

The pharmaceutical industry will have negative growth in 2011--the first drop in history--according to Alexis de Rosnay, global co-head of healthcare at Lehman Brothers. Indeed, drugmakers face their worst crisis in decades, as their revenues are under threat from shrinking drug pipelines, increased competition from generics and a slew of patent expiries.

The industry's last big answer--up to about three or four years ago-- was to pursue large-scale mergers and acquisitions. But the mega-merger strategy has failed to create value for shareholders, and the hoped-for hothouse of new drug development never materialized. There are already some signs that companies are realizing that a new approach to corporate deal making is needed.

Richard Girling, global co-head of healthcare at Merrill Lynch, says companies have relied too heavily on single products, "exacerbated by a lack of innovation." The pain will be felt acutely over the coming few years, as patents expire at an ever faster pace, with fewer new blockbuster drugs coming through to replace them.

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