Whoever says you can't throw money at problems hasn't spent much time following the Big Pharma sector this year.

More than $160 billion worth of buyouts involving top drugmakers has already been inked in 2009. The list of blockbuster deals includes Pfizer's (NYSE:PFE - News) buy of Wyeth, Merck's (NYSE:MRK - News) buy of Schering-Plough, Roche Holdings' (Other OTC:RHHBY.PK - News) buy of Genentech and Abbott Labs' (NYSE:ABT - News) buy of Solvay.

The buy-big strategy is the best way for pharma to bolster profit margins in the face of a flood of patent expirations, says a new report from analytics firm Datamonitor.

Diversification from branded drugs into other areas might help. But it won't contribute as much to margins.

"The way to deal with the patent-expiration problem is to attack it via the operating margin rather than as a sales problem," said Pam Narang, author of the Datamonitor report.

Branded Drugs = High Margins

Margins on branded drugs, at almost 29%, are much higher than margins for the overall health care sector, which average 13%.

To calculate that sector-wide average, Datamonitor included consumer and over-the-counter products, health insurance, devices and diagnostics, retail pharmacy, hospitals, generic drugs, pharmacy benefit managers, drug wholesalers and animal health products.

Pfizer's acquisition of Wyeth was intended to bolster its top line as well as diversify its product lineup.

Pfizer hasn't grown annual sales since 2006. It's expected to have flat sales again this year, observers say. And the company faces the loss of one-third of its annual revenue when Lipitor and Viagra encounter generic competition in 2011 and 2012, respectively.

The Wyeth acquisition, which won't be accretive until late 2012, adds diversity to Pfizer's portfolio. The enlarged company will have conventional drugs, biologics, vaccines, over-the-counter products, and animal products.

The experiences of Abbott and Johnson & Johnson (NYSE:JNJ - News) aren't as dire. But both face issues with their drug units.

Abbott saw its third-quarter drug sales fall 1.6% from the prior year. On the upside, sales in its nutritional business climbed 10%, while sales in its vascular unit, including the Xience stent, rose 4.7%. Overall sales climbed 4%.

A similar third-quarter story came from the much-diversified J&J. Gains from its various non-drug divisions helped lessen the impact of big declines in overall drug sales.

Still, J&J's overall revenue fell 5% during the quarter, the fourth straight quarterly decline.

One company divesting non-biopharmaceutical assets is Bristol-Myers Squibb (NYSE:BMY - News). Its shares rose nearly 5% on Nov. 16 when it announced plans sell off its 83% holding in infant-formula firm Mead Johnson Nutrition (NYSE:MJN - News).

That spin-off is another step in Bristol-Myers' strategy to focus on biopharma. The maker of blockbuster Plavix -- which had $5.6 billion in sales last year -- previously sold off its imaging and wound-treatment units.

All the money Bristol-Myers gets from divestitures goes to buying new drug products, Narang says. Datamonitor expects Bristol-Myers to derive 41% of its product pipeline from proceeds of these purchases by 2014.

The importance of margins at drugmakers is borne out in Datamonitor's numbers. It found that companies where pharmaceuticals exceeded 90% of 2008 revenue -- AstraZeneca (NYSE:AZN - News), Eli Lilly (NYSE:LLY - News), Pfizer and Merck -- had above-average operating margins: 28.2% compared with the average of 22.1%.

Companies with a more diversified structure -- GlaxoSmithKline (NYSE:GSK - News), Roche, Wyeth, Sanofi-Aventis (NYSE:SNY - News), Schering-Plough, Bristol-Myers -- had below-average operating margins of 21.8%. Those that are widely diversified -- Bayer, Johnson & Johnson, Abbott and Novartis (NYSE:NVS - News) -- had margins of 17.8%.

But while buyouts can strengthen the core drug business and boost margins, M&As rarely yield benefits to shareholders over the long term, says Mick Kolassa, chief executive of Medical Marketing Economics and author of the book, "The Strategic Pricing of Pharmaceuticals."

The way he sees it, consolidation in the pharmaceutical sector is the result of pressure from Wall Street, which puts a premium on more and better revenue streams.

"For a company facing a revenue cliff, some sort of merger or acquisition to fill that in is very appropriate," Kolassa said.

It looks good on the acquirer's books. But that doesn't necessarily mean a deal will create a more valuable combined company, Kolassa says. "Over time, the net value of the new combined entity will be smaller than what they had separately."

The Pfizer-Wyeth deal will look good on Pfizer's balance sheet, Kolassa says, as the company plugs its revenue hole. But, he adds, it will not have created one company stronger than the two predecessors. And it will have cost 15,000 jobs at a time of high unemployment.

Mixed Bag For Shareholders

No business model provides a magic bullet to deal with patent expiration, says Les Funtleyder, analyst with Miller Tabak and author of the book, "Healthcare Investing: Profiting from the New World of Pharma, Biotech, and Health."

"If investors were willing to pay more for the pure-play pharma that does acquisitions, then every pharma would do it," Funtleyder said.

But mega-mergers don't always improve stock values. In 2000 Pfizer merged with Warner-Lambert in a $90 billion all-stock deal. Three years later it bought Pharmacia, paying $60 billion in stock. And this year it paid $68 billion in cash and stock for Wyeth. Yet Pfizer's stock is down more than 40% since the beginning of the decade.