HAMBURG, Germany - Vaughn Kailian, general partner at MPM Capital, wasted little time getting to the point at the opening session of BIO-Europe 2007.

"What is it about big pharma that allows the strong to become weak and the weak to become strong?" he asked the panel.

Kailian's reference was to the dwindling product pipelines at large pharmaceutical companies, and while it was clearly intended as a devil's advocate question, it produced no vehement rebuttals even from big pharma representatives at Monday's panel on "The Changing World Order of Biotech-Pharma."

The question wasn't surprising to John Maraganore, CEO of Cambridge, Mass.-based Alnylam Pharmaceuticals Inc. "I don't know how you could possibly have a high innovation environment at a big pharma," he said. "It's hard for me to imagine how you could nurture an environment of innovation and risk taking, and produce champions. It's not consensus building; it's not benchmarking; it's not marketing judgment. It's really the gut instinct of the scientific prodigy that keeps things moving."

Jan Lundberg, executive vice president of discovery and research for London-based AstraZeneca plc, agreed that it's harder for a large company to reinvent itself, and "the more successful you are, the harder it gets."

For example, he said, "replacing a $13 billion Lipitor would be very difficult. That's 13 new compounds at $1 billion each."

But he advised against blanket statements, saying cultural differences can vary greatly among companies. "In my own organization, we have clearly unique individuals who are difficult to manage and who champion their products," he said. "And it's interesting that these are often the individuals who are patent holders on our key products."

Maraganore, whose company, Alnylam, focuses on the emerging RNAi technology, said the answer for the future lies in creating a symbiotic relationship between biotech and pharmaceutical companies. While biotech companies are innovators, they have had less success in "building value in the late stages" of the development process. Let biotech innovate, and big pharma distribute, he urged.

He cited the relationship between South San Francisco-based Genentech Inc. and Basel, Switzerland-based F. Hoffmann-La Roche Ltd. as an example of a successful collaboration operating in tandem. About 40 percent to 50 percent of Roche's top-line revenues come from Genentech products, as do 60 percent of Roche profits.

Barbara Yanna, vice president and chief licensing officer for Whitehouse Station, N.J.-based Merck & Co., attributed the shallow big pharma pipelines to the "risky" environment in which drugmakers operate. Disease targets are getting harder to work on, and the regulatory atmosphere is more difficult, she said.

Yanna also credited part of biotech's rise to what she called the "democratization of drug discovery," since biotech companies can present more attractive opportunities to top scientists who previously worked for pharmaceutical firms, and the cost of technology needed for drug discovery has fallen dramatically, allowing smaller companies to become involved.

But Yanna isn't ready for large companies to concede the innovation realm. While she predicted her company will continue working deals with biotechs, she said Merck's continued involvement in the innovation process will give it better insight into which other companies would make the best partners.

How biotech and big pharma should work together is a matter of perspective. Maraganore said that from the biotech perspective, "licensing nonexclusively is the way to go." It's a "necessary evil" that provides the smaller company with access to funding, while leaving enough of its "real estate" to continue growing. "It's like selling New Jersey but keeping California," he said.

Yanna said that from the big pharma perspective, licensing makes more financial short-term sense and long-term cents than acquiring companies. But she noted that Merck also has bought companies, sometimes for their platforms, and other times for their products. "We have to look at the whole spectrum. We can't just look at one or the other."

Acquisitions also are a good way to keep from being "blocked out" of a field or technology, said Lundberg, whose company, AstraZeneca is in a "buying mode."

Earlier this year it bought out Gaithersburg, Md.-based MedImmune Inc. for $15.2 billion. Those kinds of deals have allowed the big pharma firm to "leapfrog" into the biotech field, he said.

Despite the challenges, Lundberg said he remains confident in the big pharma model, but acknowledged that it's difficult to sustain without the external partnerships.

There is, he noted, a continuing need for new medicines and an aging population that needs more medicines, as well as the economic upturns in places such as India and China that will activate the "wealth means health" correlation.

He added, "We are much better in science and technology than ever before. Yes, it's difficult to revamp yourself if you're a big company, but there are factors for us, if we can keep our focus on the fact human beings have only one life and want it to be as long and healthy as possible, and I think they will be prepared to pay for it."

BIO-Europe 2007 ends today.