Updated on 9 January 2013
Ernst & Young 'Closing the gap? Big pharma's growth challenge and implications for deals' report is out
Singapore: Ernst & Young in its report, 'Closing the gap? Big pharma's growth challenge and implications for deals', has highlighted that pharma companies are facing a widening "growth gap" that will increase pressure to drive growth through mergers and acquisitions (M&A).
However, the report predicted that big pharma's attempts to make deals will be challenged by its diminished resources and fiercer competition for attractive assets from rapidly growing big biotech and specialty pharma companies.
Mr Glen Giovannetti, global life sciences leader, Ernst & Young, said that, "While the dynamics of the pharma industry remain fluid, the deal environment in 2013 and beyond will be more complex and competitive." He added, "Life sciences companies that are positioned appropriately should benefit from increased competition and see higher premiums. However, the finite resources of many big pharma companies and the need to make prudent acquisitions to address the immediate growth gap mean they will likely be even more selective about the targets they pursue."
Even as big pharma's deal making ability has shrunk, the firepower of big biotech and specialty pharma (including generics) companies has increased. According to Ernst & Young's Firepower Index, between 2006 and 2012 the firepower of big biotech has increased by 61 percent while specialty pharma's firepower is up 20 percent. As a result of these shifts, big pharma's share of the combined acquisition capacity of these three segments has fallen from 85 percent in 2006 to 75 percent in 2012.
"With fewer options for organic growth, pharma companies will need transactions and, more than ever, measures to build and conserve firepower are vital," said Mr Jeffrey Greene, global life sciences transaction advisory leader, Ernst & Young. "Pharma companies addressing the growth gap through M&A will seek to increase and preserve their firepower by improving working capital management, divesting non-strategic assets, conducting more careful strategic diligence to ensure targets are valued appropriately in the face of stiffer competition, and employing novel deal structures to mitigate risk."