Big biopharmaceutical companies likely struck up a chorus of “We’re in the Money” upon hearing Ernst and Young’s report that the world’s established biotechnology markets achieved profitability in 2009 for the first time ever. Mostly by dint of cost cutting, major players such as Genzyme (Cambridge, MA) moved out of the red and into the black. Making a profit was no small feat during the economic downturn, and large biopharmaceutical companies have a right to celebrate. Small companies and startups, however, are more likely to sing along with Bob Dylan, “It’s not dark yet, but it’s gettin’ there.”

Ernst and Young’s report noted that the gap between small and large biotech companies widened last year. Funding remains scarce, and investors are likely to favor established companies’ research and development programs, which are perceived as less risky and more likely to produce immediate returns. In contrast, purses probably will be closed to small and startup companies that need cash just to get off the ground.

Deloitte Touche Tohmatsu’s new white paper, based on a survey of 281 senior life-science industry executives, reinforced the grim picture for small biopharmaceutical companies. About 68% of the executives predicted that 20–40% of biotech companies would cease to exist in five years as a result of economic downturn. Small biopharmaceutical companies also will experience a brain drain, according to the white paper, as scientists jump ship and head for the safer shores of bigger firms.

The best scenario for struggling startups might be to be acquired by a larger firm. This seems a likely prospect; Deloitte’s white paper predicts an increase in consolidation that will enlarge the bigger biopharmaceutical companies. These established companies might find themselves competing for acquisitions with Big Pharma as the latter expands more aggressively into the large-molecule arena.

Recent events suggest that the biopharmaceutical industry will survive. Genzyme, Shire (Hampshire, UK), Biogen Idec (Cambridge, MA), and Vertex (Cambridge, MA) are all hiring. The shape of the industry is changing, though. As small companies sink or are absorbed, the balance of innovation will shift to large, well-financed enterprises. The predicted increase in consolidation could reduce competition and slow the pace of innovation, however. An ideal situation would be an improved economy that brightens the picture for startup biopharmaceutical companies.