The New Deal with Deals

Across the industry, deals will continue to outpace in-house discovery and early development in Big Pharma's pursuit of productivity. "With large-cap pharmas long on cash and short on late-stage products, we'll see the usual competition for good biotechs," says Peter Young, "as well as an increase in regional and midsize mergers, bolt-ons, a wide range of partnerships—and maybe even a megamerger." (Marriages most frequently gossiped about include Pfizer and Sanofi, Pfizer and Wyeth, BMS and Sanofi, and Novartis and Bayer.)

And big companies will gobble up biotechs earlier, when their proteins are still hatching. "There's more focus on Phase II," says Paul Capital Healthcare partner John Leone. "It increases the risk, but the price is lower, so a company can place more bets on more products."

It's worth noting, however, that no big pharma was desperate enough to pony up the estimated $30 billion Biogen Idec was said to be asking. After AstraZeneca's $15.6 billion purchase of MedImmune and Schering-Plough's $14.4 billion for Organon, widely viewed as wildly inflated, the all-buzz, no-bucks Biogen boondoggle signals that 2008 won't see the much-feared biotech bubble.

Still, analysts caution that acquiring innovation requires a new approach to merging. "There's always the danger of losing the creativity and the innovation if you don't allow the biotech to maintain its autonomy," says Infinity Pharmaceuticals' chief business officer Adelene Perkins. "After all, the team of people responsible for the product or technology are just as valuable as what they created."

In the past, large-cap pharmas interested in a single compound would simply buy the biotech outright and jettison the development team. But nimble-hungry execs are increasingly showing signs of learning to let biotechs be biotechs.

On the Campaign Trail

Conventional wisdom says the 2008 presidential campaign should be a top industry priority, especially because healthcare is polling among voters' top-three issues. To make matters worse, Sen. Hillary Clinton (D-NY), who backs drug importation from Canada, Medicare Part D negotiations over drug prices, increased funding for cost-effectiveness studies, and FDA approval of biosimilars, is leading in national polls.

That scenario may have seemed like pharma's worst nightmare even four years ago. But according to many analysts, the industry's traditional Republican partisanship may be on the wane.

"There's no longer a consensus that if the Democrats take over, things will be terrible for pharma," says Ernst & Young's Steinberg. "The consensus now is, 'Things are already about as bad as they could be—regardless of a Democrat or Republican in the White House.'"

The shift in campaign contributions is telling. At this point in the 2000 campaign, pharma was favoring Republicans over Democrats by a ratio of 2-to-1. Heading into 2008, the Dems have a razor-thin advantage—given the odds, pharma is hedging its bets.

Yet the emergence of healthcare reform as a pocketbook issue for American voters concerns the drug industry beyond politics. "There's a bipartisan push for universal coverage," says Adelene Perkins. "What matters most is that this is an opportunity for us to set a national healthcare agenda—and talk about how much drugs contribute to both preventing disease and lowering costs."