Michel De Rosen, Viropharma

TONY FARINO (US life sciences advisory services leader, PricewaterhouseCoopers): Some deals have been less than successful because many companies make decisions without understanding how the market—meaning payers—will assess and value the innovation. This partially explains why several compounds introduced over the last 10 years haven't met market potential. Companies are realizing that innovation cannot be defined just in the lab. It has to be defined in the marketplace.

BREITSTEIN: Given pharma's pipeline, why haven't there been more deals?

Annette Grimaldi, Jeffries & Co.

Most people see M&A as something that is countercyclical with the public market. But in my experience, it's often been the opposite. For companies to combine, they both need to be happy with their valuations at that point in time. What tends to happen is that, rather than sell themselves when the market is difficult, biotechs tend to do small, unhappy, diluted financing to tide them over until a more opportune time.

DE ROSEN: There are many reasons for the lack of deals: One is that what is for sale is not good enough and what is good enough is not for sale. Other issues include price; social or government issues; and the clinical, scientific, and regulatory uncertainties that make it very difficult to predict if the product will become huge or be a zero.

There's also this tension between the critical mass companies want to build and the focus they want to keep. It is sometimes tempting to combine a company that is focused on one area with a company that is focused on another, but very often, it does not make sense. And then there are the huge egos.

In recent years, there's also been too much money available. When a lot of money is available, companies don't need to combine. It seems likely to me that in 2008, and maybe onwards, there will be less money available and, therefore, more pressure on companies to combine than there was before.

GARTIN: There's also a low personal appetite for risk. There is very little down side in not doing a deal. If you don't pull the trigger on spending money, you don't get fired if the company does well and you have not bought it.

WALL STREET PERSPECTIVE

BREITSTEIN: Wall Street typically has a short-term perspective. How does that impact deals?

DE ROSEN: When my company was looking to acquire a drug called Vancocin, we had difficulty in raising money—people on the Street were skeptical. It was only after six months that they saw that it was a good deal. The point is, you can't judge after one day, one week, one month. You need one or two years to know.