There are some reasons to think that GSK is simply taking advantage of a downturn at HGS. Until recently, the US company’s share price was far higher, but it has tumbled sharply thanks largely to disappointing sales of its breakthrough drug Benlysta. In March 2011, Benlysta (belimumab) became the first new treatment for Lupus and other autoimmune illnesses to be approved by the FDA for 56 years. Though an estimated 5m people have Lupus worldwide, the treatment costs £35,000, a difficult price to justify when pharma budgets are so tight. As a result, initial predictions that the drug would bring in annual revenues of US$2.2bn have been rapidly downgraded. Its peak sales, in 2015 or thereabouts, now look likely to be around a third of that total.

Yet there are grounds for thinking that GSK has underestimated HGS’s value. The US company’s two late-stage pipeline drugs, for diabetes and cardiovascular disease, have potential in large, if crowded, markets if they get through final trials. Moreover, the synergies with GSK in particular are obvious, given their previous research work together,  offering a chance to reduce costs and maximise sales.

HGS may therefore talk GSK into offering more, though the precedent from Illumina’s failed attempt to bounce Switzerland’s Roche into upping its US$6.8bn bid is not encouraging. Moreover, if GSK (like Roche) in the end decides to walk away, then the UK company’s inside knowledge, as well as its 50% share in the Benlysta revenues, may make others wary of stepping in. So far that seems to be a risk HGS is prepared to take.

The EIU's Healthcare Briefing provides data and analysis for the world's most important healthcare and pharmaceuticals markets, along with five-year forecasts based on economic, political and demographic trends.

The government is also greeting the news as a triumph for yesterday’s business-centred budget - and it is. The patent box plan actually dates back to the previous Labour government and was always intended to kick in during 2013. But the coalition, after a consultation, has broadened its reach in order to increase the benefits to the pharma industry. Under the patent box, businesses will pay just 10% tax, rather than the 22% set in the current budget, on any profits arising from newly commercialised patents in the UK.

GSK has been lobbying for years for this new regime to be introduced to underpin its investment plans in the UK, while AstraZeneca has previously said that it will increase its investment in UK research into diabetes, cancer and respiratory disease in response to the plan. The lower tax should help to prevent the companies shifting spending towards new research bases in Asia, including China and India, as they try to refill their drug pipelines and keep a lid on spending. GSK’s revenues have been hit by patent expiries for drugs such as Valtrex and Advair, as well safety concerns over its diabetes drug Avandia.

But while industry has applauded the patent box, it has also drawn some criticism. The UK’s Institute for Fiscal Studies has said it will lead to a large reduction in UK tax receipts, is “poorly targeted at promoting research” and will “add complexity to the tax system”.  It also warns that the tax cut could well be copied by other countries, prompting pharma companies to shift their investment again. That, of course, is always a threat, but by committing to building a plant GSK has signalled that it is sticking to the UK for a good few years yet.

The EIU's Healthcare Briefing provides data and analysis for the world's most important healthcare and pharmaceuticals markets, along with five-year forecasts based on economic, political and demographic trends.

Justification for Novartis’s spending came this week from the Financial Times which quoted data showing that Novartis also topped the list when it came to patent applications in 2009. According to IP law firm Withers & Rogers, the Swiss company’s tally of 368 filings was around twice as many as second-placed Sanofi. And it was over six times as many as Abbott and GSK, which shared the distinction of being the least productive of the top ten pharma companies.

More worryingly, the Withers & Rogers data showed that the overall numbers of patent filings has dropped sharply in recent years. Only 129 “patent families” of drugs in leading markets were sought by the top ten drug companies in 2009, down from 189 in 2007. Though the FT calls the numbers an “imperfect snapshot” of what is going on in the industry, they do once again suggest that pharma companies are finding it hard to convert their R&D spending into experimental drugs – let alone into drug approvals.

The EIU's Healthcare Briefing provides data and analysis for the world's most important healthcare and pharmaceuticals markets, along with five-year forecasts based on economic, political and demographic trends.

The decision to sue the FDA is certainly a gamble: AstraZeneca seems to have decided that the costs of the lawsuit are far lower than the losses it will incur when Seroquel’s patent expires. The drug generated sales of US$4.3bn worldwide last year, of which US$3.3bn was in the US. If AZ does succeed in its argument over labelling requirements and data exclusivity rights, then this might give it (and other companies) another way of extending protection for drugs that are coming off patent. AZ, which is one of the hardest-hit by the patent cliff, calculates that it lost almost US$2bn in revenue during 2011 as a result of generic competition.

Other companies have tried different tactics – Pfizer, for example, struck exclusivity deals with pharmacy benefits managers to protect sales of Lipitor after itsUSpatent expired late last year. But with the mood in theUSfirmly against attempts by patented drug-makers to block generic competition, the likelihood of AZ winning its case seems remote, raising the question of how much its lawsuit may damage its relationship with the FDA.

The EIU's Healthcare Briefing provides data and analysis for the world's most important healthcare and pharmaceuticals markets, along with five-year forecasts based on economic, political and demographic trends.

As the risk of infectious diseases retreats, health in developed countries is now determined in large part by lifestyle choices such as tobacco smoking and alcohol consumption. Although smoking rates are well below the levels recorded in the 1960s, progress on alcohol consumption is mixed, while obesity rates are rising at an “alarming” pace, according to the OECD.

All of these factors are linked to the incidence of cancer. But thanks to earlier detection and better treatment, cancer survival rates are increasing. According to the latest data, the five-year survival rate of women diagnosed with breast cancer in 2004 was 83.5% in OECD countries, up from 78.7% for those diagnosed in 1997.

In spite of these gains, however, much work remains for developed countries to combat chronic illnesses as successfully as they have infectious diseases. A “comprehensive prevention strategy”, according to the OECD, spans “health promotion campaigns, government regulation and family doctor counselling”. It also costs US$10-30 per person, a seemingly modest outlay that, at scale, may nonetheless fail to find favour with austerity-minded governments across the developed world.

The EIU's Healthcare Briefing provides data and analysis for the world's most important healthcare and pharmaceuticals markets, along with five-year forecasts based on economic, political and demographic trends.

The impact of Europe’s woes on global growth is significant, not least via reduced demand for emerging markets’ exports. We expect global GDP growth, at purchasing-power parity, to slip to 3.3% in 2012, down from 3.8% this year (at market exchange rates, growth appears more modest). Rebuilding-related growth in Japan will support growth, but waning momentum in the US will dampen global prospects. Emerging markets will grow swiftly by comparison, but less swiftly than in previous years.

The biggest risk to this forecast is the outcome of the euro area’s financial crisis; a break-up of the currency union would produce a much deeper global downturn than we currently predict. (For more on our thinking about a potential euro break-up, see the special report “After Eurogeddon”.) In this context, growth that only narrowly avoids recession—the IMF considers global growth below 3% to represent a world recession—may not be such a gloomy forecast after all.

The EIU's Financial Services Briefing delivers a complete picture of the finance industry in markets around the world, combined with five-year forecasts of key sub-sectors.