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Can Big Pharma Save Biotech Investors?

Executive Summary

All the biotech stock indices are down; record numbers of companies are selling at lower-than-cash valuations. Investors want Pharma to step up and buy, removing inventory from the market, and spreading limited investment dollars over a smaller set of opportunities. While buyers say they aren't going to radically change their strategies simply to take advantage of cheap prices, it's clear that more deals will get signed - mostly because more sellers will accept terms they once would have rejected. . In short, a hotter dealmaking climate will keep biotech healthy enough to survive as an industry, albeit a smaller one, and, perhaps, with a slightly lower ceiling on returns.

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Dealmaking When Pharma's the Only Game in Town

With no public market to provide competition, the theory among biotech's optimists was that Big Pharma would step in and buy lots of bargains. But cheap prices and easy availability haven't increased drug company appetites: They will only buy what they really want. Deal volumes, both for M&A and alliances, are falling, while Big Pharma has learned to put more of the risk back on biotech. What will change this dynamic, putting more bargaining into biotech hands, is the revival of the public market - and there are hints that such a revival may be on the way.

Corporate Venture Takes Center Stage

Corporate venture groups are poised to become one of the main sources of funding for early-stage biotechs thanks to the current economic climate. Even if corporate venture groups invest at the same levels as previous years, some industry veterans believe they could play a role in up to half of the early-stage financings this year, largely because the traditional sources of financing--the public market and venture capital groups flush with cash--have disappeared. And the new vigor of corporate venture offers big benefits to both small biotechs and Big Pharma.

Biopharma in 2008: What a Difference an Economic Crisis Makes

Even before the financial meltdown, 2008 was a remodeling year for the biopharmaceutical world. Many pharma companies, more reliant on the product candidates and technologies of the biotech world than ever, were pinned down by excess infrastructure and lagging productivity. But when the world's cash dried up, so, too, did biotech's leverage over those downtrodden in-licensers and acquirers. We highlight some top trends from a difficult year that may shape industry in 2009 and beyond.

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