HOFSTAETTER: That's not reality. You can't even get a drug approved these days in Europe and other countries without showing the value proposition. In the United States, you have to do that for managed care. We don't develop a single drug without a pharmacoeconomic perspective behind it.

GRIMALDI: Do you think you do a good job of that?

HOFSTAETTER: Well, let me put it this way: Enbrel's pricing is the same everywhere in the world. Europe has accepted the same price as the United States.

RYAN: In many respects, pricing is a function of competition and value to patients. So the way to take the air out of the bubble with respect to biologics is through biosimilars. Because of the huge barriers to entry with investment in biologic manufacturing, you are not going to have the same kind of bloodbath in terms of the penetration of generics. But, by the same token, it will be interesting to see what happens when Roche gets on the market with Cera because, in reality, it's a follow-on drug [to Epogen]. How does managed care take advantage of that, even though it's more of a branded generic?

GARTIN: The price of some products is an impediment to acquisitions. If a small company sells a drug that costs $250,000 a year, that may not attract a lot of attention. But if that same product is owned by a large company, it will.

FRANK: There are dangerous consequences to this equation of pricing. This paradigm is such that research will only get done on potentially very large products. Therefore, you have to push [small projects] back to universities and so forth, as sort of tax-free philanthropy. That gets hairy.

HOFSTAETTER: We must get to a stage again where regulators and society at large accept that no benefit comes without risk. FDA asking for more outcome data—to an extent never before heard of—is driving up the length of development and drug prices. This is not sustainable, and it needs to come back to normal. One way of getting there is addressing the waste in the system. We have to make an effort to distinguish between responders and nonresponders.

A QUESTION OF MODEL

BREITSTEIN: What type of deal structure makes the most sense for emerging pharma these days?

GRIMALDI: There's no one-size-fits-all strategy. What is constant is that there are periods of receptivity and less receptivity in the public and private markets, so companies have to be innovative when it comes to how they finance themselves. There are all sorts of ways to plug the gap if the traditional types of financing aren't there—royalty financing, collaboration with Big Pharma, M&A.

DAVIS: The length of time these companies have to be funded is much longer, which has also created some innovation around private financing for private companies. IPO now is really just an interim financing for the venture companies. It's not an exit. They don't have enough liquidity, and it usually takes several more years to get to a point where Big Pharma would be interested in it.

PERKINS: There is also now recognition of biotechs getting products all the way through development and to market, which leads investors to say, "Why don't you keep it yourself?"

So why don't we? As a young company, you have two assets—equity and product. It's really important to think about the right balance of when to partner and when to use equity. If you use 100 percent equity, there is tremendous dilution, recognizing that some products will fail and will carry that dilution forever. It's very expensive to do equity alone.

CLINTON: How are deal terms changing?