Merck outlined ambitious and capital-intensive plans for a biosimilars business at its annual investor day in early December. The company aims to leverage its 2006 acquisition of GlycoFi to launch six or more follow-on biologics between 2012 and 2017. The news shifts the Big Pharma in an entirely new direction, one that pharmaceutical companies--with the exception of Novartis AG's Sandoz division--have largely stayed away from.

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.

For all its noise and parties, speeches, and meetings, the 26th annual JP Morgan Healthcare Conference felt more like an indecisive pause than the industry's first step into the new year. Biotech investors see their best exits through M&A, but activity's been unpredictable and less buoyant than expected. But generics and still-impoverished pipelines will force drug companies to make different choices. The quickest solution to pipeline problems is to imitate biotechs by developing or buying biotech products and technologies. These technologies allow Big Pharma to do with biologics what they used to do with small molecules: create fast-followers. Except that there's far more competition this time around.