Some of the world’s biggest pharmaceuticals companies are likely to embark on a buying spree as imminent patent expiries combine with a greater willingness from biotechs to sell out.

The leading pharma companies are seeking to compensate for an estimated drop of more than $100bn in sales over the next five years on blockbusters such as Pfizer’s Lipitor, Wyeth’s Effexor, Merck’s Singulair and Eli Lilly’s Zyprexa.

 “There are multi-layers of M&A going on at the moment as the big pharma companies look for ways in which to get their share prices up – and these companies are deploying a wider range of strategies to do so than ever before,” said Richard Girling, global co-head of healthcare at Merrill Lynch.

Several chief executives, including Andrew Witty at GlaxoSmithKline and Bernard Poussot at Wyeth, have already said they are suspending share buybacks to take advantage of the dislocation in the markets to acquire assets.

They have been helped in the short term by the relative outperformance of pharma stocks, easing pressure from investors to return cash. More importantly, with valuations down more than 30 per cent, it looks more attractive to acquire biotechs rather than negotiate complex licensing deals.

About half of European biotech companies could face severe financial distress during the next two years, forcing many into takeovers to survive. Those that could be open to deals include Zeltia, Allergy Therapeutics, Vernalis and GPC Biotech.

A second important category of acquisitions will be in niches. GlaxoSmithKline and Sanofi-Aventis are among those companies that look set to expand their interest in the purchase of generic drug companies.

GSK has recently strengthened its portfolio by acquiring strategic products and subsidiaries in particular regions from rivals AstraZeneca and Bristol-Myers Squibb .

Bankers, keen for important mandates at a time when deal flow has been drying up, predict a return to large industry deals, such as the mega-mergers that created GlaxoSmithKline in 2001 and Pfizer’s $53bn takeover of Pharmacia in 2003.

Such deals failed to deliver significant economies of scale or to reinvigorate innovation, although some analysts believe a new wave could help cut the rising costs of R&D budgets, which typically total 16-18 per cent of sales.

With a new line-up of management at seven of the 10 largest pharma groups, attitudes to mega-mergers could change. “All of the top 15 pharmaceuticals companies have undergone senior executive-level changes within the last two years,” says Carolyn Buck Luce, global pharmaceuticals leader at Ernst & Young.

But David Brenan, chief executive of AstraZeneca, the Anglo-Swedish group, plays down the likelihood of another mega-merger. “I just don’t see it,” he says. “Once you’ve reached a certain size, there is no benefit for R&D productivity, and if it’s about taking out scale, you should be doing that anyway.”

What could change the stakes is if Pfizer, the world’s largest pharmaceuticals group, which faces greater pressure than many of its peers once Lipitor goes off patent in 2011, makes a big acquisition to stay ahead. Barbara Ryan, research analyst at Deutsche Bank, believes Pfizer, Merck and BMS are all well positioned to make transforming acquisitions.

Aside from a general executive and investor suspicion, there could also be practical difficulties in achieving large-scale deals. One analyst argues that some transatlantic paper transactions may be complicated because US investors would be reluctant to take European shares in payment.

However, unlike the pharma consolidation of the past that tended to use stock as acquisition currency, this wave of deals will be financed in cash. Goldman Sachs estimates that European and US pharma sector will collectively generate $440bn in operating cash from 2008-2011, providing substantial internal resources for funding.

Yet the state of the credit markets could make debt raising difficult. Severin Schwan, who took over at Roche this year, maintains that his company is well positioned to finance its planned $44bn buy-out of minorities at its subsidiary Genentech. The current discount to its $89-a-share offer suggests the markets are more suspicious.