Dealmaking Along the Faultlines

Big Pharma's valuations are depressed; biotech is red-hot. Alliance volumes have fallen, but average deal values are up. The valuation divide masks the subtler cracks dividing biotech's elite from a mass of undifferentiated technology providers. Drug companies are recognizing that basing discovery programs around new, proprietary targets is highly risky and lengthens R&D time. Targets themselves, absent optimized lead compounds, are increasingly commoditized. Therefore, companies who don't provide integrated discovery capabilities aren't going to get the high-value deals that will justify their current, sky-high valuations. Meanwhile, companies with integrated solutions must back up their promises of productivity enhancement with their own money--though they also get a richer share of the end proceeds.