Updated on 15 May 2015
Singapore: However, companies must reinvigorate and expand their deal-making strategies in order to become market leaders. Additional key findings in Ernst and Young's Firepower Index and Growth Gap Report 2015 include:
Growth matters: Over the past five years, big biotech and specialty pharma firms delivered cumulative growth that was more than five times that of big pharma. Total shareholder returns for big biotech and specialty pharma firms were 257 percent and 332 percent respectively, compared to 116 percent for big pharma. This comes as product sales at many of the big pharma companies are not keeping pace with revenue growth for the overall drug market, resulting in a growth gap of $100 billion by 2017.
Tax-efficient strategies: Thanks in part to the tax-efficient strategies at their disposal, specialty pharma companies were the dominant acquirers in 2014, deploying over 50 percent of their available firepower for M&A. Big pharma used only about 10 percent of its firepower for M&A in the same period. Of note, one specialty pharma company announced two deals roughly equal to all of big pharma's combined transactions.
Big pharma's share of firepower decreases: Big pharma's own firepower increased from 2011 to 2014 by 16 percent. However, big pharma's share of the total biopharma industry's firepower of USD1.3 trillion dropped for the fourth consecutive year in 2014, hitting a new low of 66 percent.
Pricier assets: Valuations of potential acquisition targets (ie, companies with projected 2015 sales exceeding USD1 billion) rose, on average 164 percent, from 2011 to 2014. Those valuations put many of the most attractive growth targets out of reach for certain big pharma acquirers even as big pharma companies looked to do more deals to focus on areas of therapeutic strength. The twin forces of declining relative firepower and increasing valuations influenced some firms to divest non-strategic businesses or product lines, while others seized the opportunity to add scale.