Big pharma has pursued an aggressive strategy of mergers and acquisitions in an effort to grow their businesses, but this approach has failed and resulted in the loss of $1 trillion in value over the last 10 years.

That is one of the key findings in the latest report from Burrill & Co on the biotechnology industry titled Biotech 2011-Life Sciences: Looking Back to See Ahead. The study claims that on December 31, 2000 the combined market capitalisation of 17 of the industry's most active acquirers was $1.57 trillion, excluding Johnson & Johnson. By the end of last year, that figure had shrunk to $1.04 trillion, a loss of more than $500 billion in market value.

When the combined value of the acquisitions these companies completed during this time, $425 billion, is added, close to $1 trillion in value has been lost during the last decade, even without taking into account transactions of less than $10 million. The report also notes that while big pharma continues to produce roughly the same number of new drugs each year despite a steady increase in R&D investment, smaller companies have come up with a growing share of new treatments "and done so more cost effectively".

The study goes on to say that while the major players are pursuing acquisitions of innovative biotech products and companies, they are now taking steps "to leave in place the culture of these companies to protect the innovation they covet". In other instances, big pharma is seeking to emulate biotechs through "new R&D models that create small, focused, independent research units.

Steven Burrill, chief executive of the merchant bank which specialises in life sciences, noted that the loss of revenue drugmakers are looking at "over the next several years does not just reflect the impact of competition from generic drugs, but also the failure of big pharma's R&D to generate innovative products to replace those going off-patent.

He added that "if the industry is to return to the type of growth it once enjoyed, it must innovate its way out of its current predicament".