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What will the doctor order? Focus on pharmaceuticals: looming patent expiries are heightening big pharmas' appetite for acquisitions. Alongside mega-mergers and buying-in R&D, deal activity is being shaped by diversification strategies that in future could add new meaning to the concept of the healthcare conglomerate.

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It would not be unreasonable to look at 2009 as the year that saw the mega-merger return to the pharma sector almost a decade after the huge deals that created many of the single, double and triple-barrelled behemoths--Pfizer, AstraZeneca, Sanofi-Aventis, GlaxoSmithKline--we know today.

There's no doubt that in 2009, Pfizer's US$64bn acquisition of Wyeth, Merck's US$46bn takeover of Schering-Plough, and Roche's US$47bn buyout of the 44g of US biotech Genentech it did not already own were focal, industry-shaping deals.

But only seeing the pharma sector through the prism of mega-mergers hides the reality of a sector in the midst of an unprecedented period of change. Pharma companies are following multiple strategies and in many cases seeking diversification away from the traditional activities of drug development.

The wave of patent expiries in the next three to four years is driving M&A. As the need to replace revenues from lost patents becomes more urgent, it seems that big pharmas are increasingly willing to try anything in the pursuit of innovation and efficiency, as a recent pioneering deal between GSK and Pfizer proves.

Structural collaboration

In April 2009, GSK and Pfizer created a new company combining their HW-focused treatments. In statements, Andrew Witty and Jeff Kindler, the respective chief executives of the two pharma giants, emphasised that the deal was evidence of their commitment to deliver medicines to treat HIV/AIDS.

The deal certainly presented an opportunity for an advantageous PR angle, but it was much more than just that.

Doug McCutcheon, head of EMEA healthcare banking at UBS, called the cash-free deal "groundbreaking" and a "win-win" for GSK and Pfizer. The combination of the two giants' offerings in one area is representative of the sweeping change that is shaping the pharma industry.

Collaboration between big pharma companies to develop and commercialise products is not new. What is groundbreaking about this deal, however, is the fact that it sees the two groups pool their entire portfolios in one therapeutic area to form a new company.

"Previous pharma collaborations have involved milestones to trigger payments. This transaction is innovative because the milestones apply in a joint venture to trigger changes in the equity ownership of the JV company," says Ian Stanley, corporate partner at Alien & Overy, the law firm that advised Pfizer on the deal.

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The new company, with sizeable revenues of 1.6bn [pounds sterling] based on 2008 pro forma results, makes sense for both shareholders, giving them flexibility and allowing them to get the most out of their HIV assets.

GSK has a portfolio of marketed products to treat HIV but lacked a pipeline to sustain its position in the disease area. Offloading its portfolio means the HIV business will no longer drag on GSK's growth profile.

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Similarly, Pfizer will benefit form GSK's sales infrastructure in the area without having to...

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