One of the constant dilemmas for biotech companies is the multiple audiences to whom they must appeal on a regular basis. For the Wall Street audience, it is generally in a company's interest to project the largest possible market size and hence the maximum future revenue stream for its products in development - a game that sellside analysts often play with even greater fervor (more on that at a later date). But for a second critical audience, potential pharmaceutical company partners, such projections, and the valuations they imply, can be deal breakers.

Dealmakers from the pharmaceutical side provide mixed reviews about their experiences in negotiating with biotech companies. As might be expected, those whose experiences have been negative can wax long and eloquent on the problems they've run into, while those whose negotiations have run more smoothly tend to trundle along quietly on their way.

Whatever the reality, biotech companies need to know how the pharmaceutical companies look at market projections, and how the senior companies look at biotech proposals. Coming in with reasonable numbers from the beginning, or a willingness to listen to the other side's numbers, can speed the process considerably, and ultimately can make the difference between walking out with a deal or walking out empty-handed.

The criticisms

Critics of biotech proposals aren't hard to find. According to David Brush, director of licensing at Astra Merck, the majority of biotech company proposals considerably overstate the potential market size of their products compared to pharmaceutical company estimates. The differences between the two sides can be substantial.

"I hate to stereotype too much, but if you say it's $100 million, they'll say it's $200-$300 million and up to $500 million, so it can be 200-300 percent off," Brush said. "For example, we're one of the few companies in the gastrointestinal area. A company will come to us and say, 'The inflammatory bowel disease population is X.' Our M.D.s will look at it and say, 'This portion of the population will be treated with steroids; this portion will be treated another way,' resulting in a lower number."

That's also the opinion of Eileen Mendel and Andrew Becker of The Mendel Group, which consults to biotech companies. They can recite a list of biotech companies whose first products, often second-line therapies or products designed to replace existing treatments, they expect will be far smaller than most Wall Street analyst and company estimates.