Dan Whalen is a JD candidate at Osgoode Hall Law School.

The New York Times reported that many of the major players in the global pharmaceutical industry are set to lose exclusive rights to 10 blockbuster drugs of combined annual sales close to US$50 billion. No mere fluke, this news marks the beginning of an industry-wide downward spiral of patent expirations. As case in point: of the 14 drugs Pfizer considers “most significant in relation to [its] business as a whole,” the U.S. patents of eight are set to expire within the next two years, including the famous Lipitor and Viagra.

Although the coincidence of these expirations is startling, of greater concern is the realization that these companies’ product pipelines have mostly run dry. It isn’t for lack of trying; as the Times observed, industry-wide research and development spending has nearly doubled since 2000, yet the U.S. Food and Drug Administration has been approving fewer and fewer new drugs. The primary culprit of this trend is that many of the large multinational companies have endured significant failures in their clinical research. More specifically, many companies have been narrowly focused on the same therapeutic targets, which have panned out for no one. For instance, industry giants Pfizer, Johnson & Johnson, and Eli Lilly have all been forced to abandon their significant investments in developing an Alzheimer’s disease treatment after years of clinical failures.

This tale of reversing fortunes offers insight into how pharmaceutical companies have adapted their business models (or not) to a system whereby exclusive product ownership rights expire after a set period of time. As mentioned, the classic solutions of simply developing new products or patenting biosimilars of existing brands have proven to be not so simple at all.

In a more recent trend, many of the larger drug companies have sought to buy themselves out of their predicament by acquiring competitors with newer products. As the Times reported, companies Pfizer, Merck, Roche, and Sanofi-Aventis have each paid tens of billions of dollars in acquisitions since 2009. Initially, this strategy works to offset other revenue losses; for example, Pfizer reported a 3% drop in annual biopharmaceutical revenues of legacy products in 2010, which was compensated for by added revenues from its recently acquired Wyeth products.

However, such acquisitions should perhaps be viewed as only short-term gains. As Gary Pisano of Harvard Business School noted, “[i]n pharmaceuticals, M&A may lead to onetime gains in eliminating redundancies, but once those savings have been made, there is still a growth problem to be solved.” In a business model that leans so heavily on the patent system, it seems, the only true way to maintain competitive advantage is ongoing and unrelenting innovation.