At the top of the industry, consolidation has frozen out much additional M&A; horizontal mergers among large companies have become much more difficult to get through regulatory authorities as the industries themselves have consolidated. In medical devices, M&A is at a 10-year low, reflecting a paucity of high-value small-company opportunities. Perhaps as important, some successful big-company development programs undermine a basic assumption of medical device investing: that big companies must source innovation from small ones, usually through acquisitions. Meanwhile In biotech, the number and value of M&A is down, despite the apparent logic of consolidation and the unprecedented willingness of sellers to accept low valuations. The key problem is that there are few buyers: those without extremely strong balance sheets aren't willing to take on additional burn rates, having seen some acquirers come to grief as their new, apparently stronger companies are unable to raise money in this bear market.

Xiangmin Cui's vision, in co-founding Pan Pacific Pharmaceuticals two years ago, was to combine his personal knowledge of traditional Chinese medicines with the scientific training he received both in China and at Stanford University. Pan Pacific's lead compound for rheumatoid arthritis has been successfully cloned and expressed, and shown to be identical in structure and activity to a naturally occurring molecule with potency against the disease.

Combine two smaller weak businesses and you get a big weak business, unless the merger brings out hidden assets. Can the latter happen to Upjohn & Pharmacia? Maybe, but the obstacles against it are significant.