Lori Hoberman

Even in the current financial climate, the CV money is still there for early-stage biotechs that have a product or platform with blockbuster potential. That's what the venture capitalists are looking for: something with a big potential exit. But there's much less tolerance for risk because of the long term nature of the investment. The funds in that space have at least a two-year time horizon. Investors are getting a lot of pressure from limited partners who don't want to be writing checks to make their capital calls. The message to the biotechs is "Cut the burn rate with a smaller space, fewer employees—whatever you can do to minimize the time you need to go back to the trough for more money."

At the same time, the Big Pharma companies look to these startups as part of their own R&D and innovation. We're seeing a lot of joint collaboration, where the Big Pharma is bringing something in its portfolio to the table and relying on these small, much more nimble, early-stage companies to build it out or find another use for it. Then, at the end of the collaboration, there are some very interesting licensing arrangements—maybe the compound goes back to the Big Pharma, with significant royalties going to the early-stage, or certain exclusivities are given to early-stage versus Big Pharma in terms of marketing.

The profit motive is at the heart of everything, but there are other reasons for drugs to hit the market. If the blockbuster profit potential shapes the market, it will absolutely be doomed.

Ronald Renaud

Being in biotech is a risk-laden endeavor, and the risks just get magnified in a serious economic downturn. We have to pay attention to our balance sheet even more closely now than in a good market, and worry even more about how every decision is going to impact the return on investment. The notion used to be that biotech companies never go away, they just reinvent themselves. But now we are definitely seeing companies close up shop. The capital-raising window is mostly shut.

It's quite a shift, from talking about small biotech bankruptcies to Big Pharma megamergers, even though they're part of the same industry. The mergers are obviously about the need for products, as a patent cliff is staring these big companies in the face. But I don't think it's desperation as much as it is a sea-change in how Big Pharma is thinking about its own R&D productivity. There's the need to address low productivity at a very, very critical point in the industry's life cycle.

The 10 or 11 largest pharmaceutical companies are almost at $1 trillion in market cap. And, on average, they have from $10 to $12 billion in cash, with continued free cash flow. So there's a lot of capital to deploy for needed assets. With valuations where they are and the amount of cash Big Pharma has, the opportunity to aggregate smaller biotech companies with innovative drug discovery platforms, whether in inflammation, say, or virology, is more attractive now than in the past 15 or 20 years.

There's a lot of diversity now in the way pharma is structuring deals. At Idenix we just completed a $450 million licensing deal with GlaxoSmithKline for one of our three HIV compounds. We get an up-front payment, and the rest is contingent upon our successfully meeting milestones. We also get royalties if the commercialized product meets sales milestones. Both sides win in that kind of deal. There's a very natural synergy compared to the slash-and-burn approach to M&A that we've been accustomed to.

There used to be an assumption that hostile takeover attempts didn't happen in biotech. You can't say that any more. They happen up and down the range of market caps—you have Roche and Genentech, Astellas and CV Therapeutics. If you're a small company, it makes you more vigilant about who owns your stock.