It looks like a lot of people in the business development offices at pharmaceutical companies were looking to get their work done before taking off for the holidays. Check out all the deals announced yesterday.





Abbott Labs (NYSE: ABT) EpiTherapeutics Not disclosed Three-year cancer drug discovery collaboration
Pfizer (NYSE: PFE) Lpath $14 million upfront, up to $497.5 million in milestones Option to license eye drug iSONEP
Pfizer Phylogica $0.5 million upfront, up to $134 million in milestones Peptide-based vaccines drug discovery
Bristol-Myers Squibb (NYSE: BMY) Oncolys BioPharma Up to $286 million in upfront and milestone payments License to develop and sell HIV drug Festinavir
sanofi-aventis (NYSE: SNY) Avila Therapeutics $40 million upfront, up to $154 million in milestones Three-year drug discovery collaboration

Source: Company releases.

Private drugmaker reporting for duty
What I find most interesting about the list of pharma partners is that not one of them is available on the major U.S. exchanges. Even mid-cap drugmaker Gilead Sciences (Nasdaq: GILD) got in on the private-drugmaker buying spree by picking up Arresto Biosciences yesterday.

Avila, EpiTherapeutics, and Oncolys are all privately held. Phylogica is only available on stock exchanges in Australia and Germany. Shares of Lpath are available over the counter, but at a market cap of about $40 million before the deal, it wasn't exactly on most investors' radar screens.

Does that mean pharma has shunned public companies? Not really. Novartis (NYSE: NVS) did a substantial deal with ImmunoGen (Nasdaq: IMGN) a few months ago for its Targeted Antibody Payload technology. There's still money to be made investing before pharma does its deals.

A more reasonable explanation of Monday's phenomenon is that there are just a heck of a lot of private drugmakers out there. They may not be on investors' radar, but the lack of an IPO market over the past few years has kept many drugmakers private that might have otherwise gone public. Add venture capital funding that's been sluggish of late, and a hand up from a pharma big brother looks pretty enticing for these companies.

Early stage outsourcing
Another interesting aspect of Monday's deals was the stage the compounds are at. With the exception of Oncolys' phase 2 HIV drug, Festinavir, the other deals were for phase 1 or preclinical molecules.

In fact, three of the deals were for molecules that haven't even been discovered yet. Essentially big pharma is saying, "Hey, you've got a lot of experience in this field and a nice platform to discover molecules. Here's a few million dollars. Go discover something, and we'll get them through the clinic and market them."

The No. 1 concern of pharmaceutical companies and their investors should be how to stock the pipeline. Drugs go off-patent; that's a fact of life. The only way to counter the inevitable loss of revenue from generic competition is to develop new drugs. If it's more efficient and/or cheaper to have someone else stock the pipeline rather than developing them in-house, I say go for it.

Pay if it works
As has become the mainstay, these deals are rent-to-own with a majority of the payments coming only if the drug works. While big pharma puts up some cash early on, the risk of failure is still squarely on the shoulders of the small drug developer.

In the case of iSONEP, Pfizer is actually just buying an option to license the drug. It doesn't have to make a decision until after planned phase 1b and phase 2a trials have been completed.

Investors need to be cautious when reading headlines. The hundreds of millions of dollars in biobucks might make a good sound bite, but those milestone payments are in no way guaranteed.

Happy New Year?
Big pharma gave some drugmakers a nice Christmas present, but what does the new year hold for drugmakers? Check back next week, and I'll have a list of small drugmakers that could see deals in 2011.

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Pfizer is a Motley Fool Inside Value pick. ImmunoGen is a Motley Fool Rule Breakers selection. Gilead Sciences is a Motley Fool Stock Advisor pick. Novartis is a Motley Fool Global Gains recommendation. Motley Fool Alpha owns shares of Abbott Laboratories. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Fool contributor Brian Orelli, Ph.D., doesn't own shares of any company mentioned in this article. The Fool has a disclosure policy.