Lacking any new multi-billion dollar “wonder drugs,” the big global pharmaceutical companies are turning to small biotech firms to help boost future profits.

The shift in strategy is an attempt to cope with an inevitable and gaping hole in their product lines. 

“Ninety percent of big pharma’s revenues are going to fall of the face of the planet in three years,” said Dr. Bijian Salehizadeh, a partner with venture capital firm Highland Capital Partners, which invests in early-stage biotech companies. “They have to turn somewhere --and it just happens to be in the direction of these small firms where all the ideas are being generated.”

The revenues are expected to disappear because the big pharmaceutical companies have struggled to develop new drugs that appeal to vast numbers of patients. Moreover, the biggest money-making drugs in their portfolios are soon going off patent, leaving them open to competition from equally effective generic drugs that cost a fraction of their brand-name counterparts.

Consider Pfizer’s (PFE) blockbuster cholesterol drug Lipitor, which had $12.7 billion in sales just last year and generates about 25% of Pfizer’s annual revenue. It will go off patent at the start of the decade and Pfizer has yet to explain how it will offset that loss in revenue.

And Lipitor is just the most glaring example; there are dozens of others. According to the Wall Street Journal, the largest drug companies are expected to lose $67 billion in profits to generics between 2008 and 2012.

“There’s a huge amount of uncertainty in the market right now for the big pharmaceutical companies,” said Dr. Kevin Schulman, director of Duke University’s Fuqua School of Business health care management program.

In order to fill the profit hole, companies like Pfizer have been acquiring small biotech companies, many of them comprised of little more than an idea.

Two weeks ago, British pharmaceutical company GlaxoSmithKline (GSK) completed its purchase of Sirtris (SIRT) for $720 million. The company is working on developing a family of drugs based on resveratrol – the compound found in red wine that can possibly lower cholesterol and help with cardiovascular problems.

“We bought the company to accelerate that science and possible discovery of drugs through this family of enzymes,” said GlaxoSmithKline spokeswoman Louise Dunn.

Another example came early last year, when Merck (MRK) purchased a small San Diego-based heart drug developer called NovaCardia for $350 million.

In fact, the pharmaceutical industry has done more acquisitions in the past three years than it did in all of the 1990s.

Not all acquisitions are the same, however.

Merck officials said they were primarily interested in obtaining a single experimental drug from NovaCardia, whereas Glaxo was interested in partnering with Sirtris to develop a broad area of new research.

“NovaCardia was assembled to be sold,” said Barbara Yassi, Merck’s chief licensing officer. “They made it clear to us and other people in the industry that they wanted to sell the company outright. They were not interested in partnership.”

Meanwhile, Sirtris and its 60 employees based in San Francisco now functions as a fully-owned subsidiary of Glaxo.

Much like the dot-com era almost a decade ago, big corporate giants are targeting these small operations not for quick profits but something far less tangible – an idea.

“I may not like the drug that this company has developed, but I like the idea or the mechanism behind it,” said Mark Bard, president of Manhattan Research. “These companies see something and think ‘Well, the profitability of that drug may be impossible, but I like what it does.’ That’s what they’re after.”

Merck’s recent $1.1 billion purchase of Sirna Therapeutics fits this description. Sirna has developed an innovative technique for something called RNA-based drug development.

“Originally, we were working with Sirna on licensing some of their science,” Yassi of Merck said. “But, as we got into negotiations, it became clear to use that we felt this was a game-changing technology for pharmaceutical discovery, so we went ahead and purchased the whole company.

Yassi said it may be years before Merck benefits from Sirna’s technology, but they believe the price was well worth it.

“Sirna’s now operating as a subsidiary for us, and we believe we have retained some great technology that could give us great future benefits down the road,” she said.

Like most small drug companies, Sirtris and NovaCardia didn’t have drugs on the market when they were acquired by larger companies. Both companies have drugs in the Food and Drug Administration’s approval pipeline, but the likelihood of those drugs being both effective and approved by the FDA is small. By most estimates, just five out of every 100 experimental compounds ever make it to market.

But without anything in their own pipelines, big pharmaceutical companies have to try something.

“It’s better to make the bet (on a small biotech company) than to wait in this environment,” Salehizadeh said.

Merck, Glaxo and the others are going shopping rather than wait the decade or longer it takes to develop a new drug, Salehizadeh said. Even if Merck or Pfizer scientists came up with a safe and revolutionary compound tomorrow, that drug wouldn’t make it into patients’ hands until at least 2015.

Shifts in the broader healthcare landscape have also led to big pharma’s shopping spree.

The market has shifted away from broad-based drugs such as Lipitor, allergy drug Claritan or Viagra. Instead, the emergence of “personalized medicine” has caused the big drug companies to push their research and development money into patient-specific treatments. 

The results can be extremely profitable. A single cancer treatment by a small biotech company can cost upwards of $50,000, Salehizadeh said.

“We’re now in a world of ‘this specific disease will respond to this specific drug,’” said Salehizadeh. “You have less patients on the drug, but you can charge a hell of a lot more.”