Despite profits in the billions of dollars, big pharma wants even more. Even the giants of the industry, such as Pfizer, claim they have to be bigger to do it better and faster (see p. 857). For companies with an increasing number of existing products going off-patent and few new products in the pipeline, consolidation is a simple and quick fix for sustaining profit growth. Unfortunately for biotechnology, it may also signal that the environment for alliances and/or licensing agreements with the main pharmaceutical houses is about to become more hostile.

The new Pfizer company, formed in July by its takeover of Pharmacia, has a whopping $41 billion in projected yearly revenue, dwarfing the income of its closest competitor, GlaxoSmithKline. And it will spend $7 billion—almost half the total budget of the US National Institutes of Health—on R&D. The problem is that it also plans to save about $6 billion by 2006 through judicious cost cuts, many of which are likely to be made in early-stage projects involving biotech companies (Pfizer has around 510 existing R&D collaborations, according to its 2001 annual report).

This would hardly be a serious problem if funding were not currently in such short supply for the biotech sector. Public markets have remained firmly ill-disposed to biotechnology companies in 2002, creating an environment that has not been helped by several high-profile disappointments, including Corixa's Bexxar cancer drug, Abgenix's ABX-IL8 treatment for rheumatoid arthritis, and the widely publicized debacle of ImClone's Erbitux treatment for cancer. Most publicly traded companies are now trading at a fraction of their 52-week highs, with little hope of new cash. At times like these, funding from big pharma collaborations often represents the lifeblood for many young biotechs.

But, as always, there are reasons for optimism. In 2001, for example, 440 alliances were formed between biotech and big pharma companies, the largest number in over 20 years of collaborations. This value has retained a positive and constant slope over the past five years, and most importantly, pharma is highly unlikely to scale down any important biotech partnerships, as these have proven extremely fruitful in the past. According to Recombinant Capital (http://www.recap.com), GlaxoSmithKline counts 5 biotech-derived products among its top 33 therapeutics; Johnson & Johnson has 2 among its top 10 therapeutics; Eli Lilly 3 among its top 10; and the new Pfizer–Pharmacia company has two among its top-selling products.

If increasing consolidation in the pharmaceutical industry does curtail investment in early-stage biotechnology companies, we predict it will be only temporary. Although this is not a hard prediction to make, we would be hard pressed to say exactly how temporary. But even if companies like Pfizer cut partnerships during reorganization, there will surely be opportunities for bigger, cash-rich biotechs to step in and do some bargain hunting themselves.