Summary of Ernest & Young’s Report ‘Closing the Gap? Big pharma’s growth challenge and implications for deals’

  1. In recent years big pharma have undertaken various measures to drive shareholder value, including repurchasing stock and increasing dividends. However the measures are not sustainable and big pharma needs revenue growth to sustain shareholder value.
  2. Prior to 2010 big pharma kept pace with the global drug market. However in 2011 the drug market grew faster than big pharma, by about $20bn. The gap is expected to be $50bn for 2012 and $100bn for 2015, primarily due to the patent cliff.
  3. Big pharma will find it difficult to close the gap by M&A deals since its ‘firepower’ is decreasing.  ‘Firepower’ is determined by a company’s available cash and debt, and decreased by 23% between 2006 and 2012 for big pharma, whilst increasing by 61% for big biotech and 20% for speciality pharma.
  4. Competition from big biotech, speciality pharma and generics will make the deal environment more competitive and complex.  US companies are more likely to do deals offshore, and big pharma will probably be doing more deals in emerging markets.
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