The Value and location of Innovation in the Pharmaceutical Industry

I read in the papers today how margins are being squeezed in the European Pharmaceutical industry. There are a a few things happening as a result of this. First, plenty of mergers and second, movement away from costly innovation towards development, manufacturing and marketing of generics, and finally the origin of these changes, the increased pressure on innovators from either copy-cat drug patentors (patented drugs that are almost the same as your drug) or generic drug makers that are challenging the validity of patents.
One would normally think all this is bad- if one favours innovations that is. After all, companies that innovate are now facing a substantial disincentive to innovate. Perhaps this is not the case. Perhaps the cost of innovation is not being driven by the incentives or disincentives of the Intellectual Property system. Perhaps it is driven by the economics of the process or rather the relative economic value of the various components of the drug production process.
I wonder if innovation as preliminary component of the drug production process has been milked for all it is worth. Perhaps in the relatively efficient distribution systems of the North Atlantic countries, the "jump" in value was only available in creativity in researching and developing the product. Thus monetising that part of the process by wrapping in Intellectual Property protection was economically efficient for European and North American producers. "Innovation" in drug research provided the most tangible benefit and thus rewarding companies that innovated bolstered an economic need that already existed and prevented other market forces from stunting an important move. Thus, there was no twisting of market forces in propping up innovation through IP laws.
But now the game has changed, the EU and globalisation in general has brought up many asymmetric jurisdictional (legal and political) challenges to the logistics of marketing and distribution. This brings many inefficiencies to the market apparatus (relative to the overall size of the global market, or rather the overall expectation of distribution)
Therefore perhaps the money to be made is now by generic distribution which focusses on logistics and doesn't have the complex cost of both innovation and protecting innovation. IP rules may balance it somewhat in some jurisdictions but let's face it- IP laws are tenuous and still being formed through continuous challenge by people. IP cannot compensate for the growing costs of R& D in Europe as well as the uncertain and growing costs of protecting a patent portfolio.
Thus generic manufacturers who focus on distribution efficiency will win in the short term because they are efficient and numerous and have no "jewels" to lose.
Think of this like the barbarians at the gates of Rome. Rome has become too costly to maintain and defend. There will be a new order not controlled by Rome. But. I don't fear this new order- whatever we resist, we will become. Rome may have fallen, but Roman law continues to cast a long shadow.