PharmExec Blog

Big Pharma's "Firepower" Effectively Dropped by 20% in 2013, Says Report

Although Big Pharma’s ‘firepower’ increased last year by $100 billion, it declined in comparison with that of Big Biotech and specialty pharma, according to a new report from EY.
EY’s Firepower Index measures companies’ capacity for conducting M&A deals. Firepower is diminished as its market value, cash and equivalents fall or as its debt levels rise. Big Pharma’s may have seen a 15% increase in firepower in 2013, but the report highlights that its portion of the firepower of Big Pharma, Big Biotech and specialty pharma combined has fallen from 85% in 2006 to 70% last year. Adjusting Big Pharma’s firepower for the higher price these former targets means it has actually declined by more than 20%, and is now on a level last seen before the impact of the global financial crisis of 2008.
With Big Pharma’s growth gap remaining unchanged at US$100 billion, the EY report offers a number of options and tactics that the industry can deploy:
Forge ahead with large-scale M&A?Rely on organic growth
Refine and focus the business model
“Big Pharma’s successful re-emergence as a dealmaker will depend largely on how well it reconciles its organic growth expectations with deploying fi  repower to close remaining
growth gaps,” adds the report.

Although Big Pharma’s ‘firepower’ increased last year by $100 billion in absolute terms, it declined in comparison with that of Big Biotech and specialty pharma, according to a new report from EY.

EY’s Firepower Index measures companies’ capacity for conducting M&A deals. Firepower is diminished as a company’s market value, cash and equivalents fall, or as its debt levels rise. Big Pharma may have seen a 15% increase in firepower in 2013, but the EY report reveals that its portion of the combined firepower of Big Pharma, Big Biotech and specialty pharma has fallen steadily from 85% in 2006 to 70% today. Adjusting for the higher valuations of Big Biotech and specialty pharma means Big Pharma’s firepower has actually declined by more than 20%. It is now on a level last seen before the impact of the 2008 global financial crisis.

With Big Pharma’s growth gap remaining unchanged at US$100 billion, EY suggests that industry can now:

  • forge ahead with large-scale M&A;
  • rely on organic growth; and/or
  • refine and focus the business model.

Big Pharma’s successful re-emergence as a dealmaker will depend on “how well it reconciles its organic growth expectations with deploying firepower to close remaining growth gaps,” adds the report.

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