Welcome!

News Feed Item

Big pharma's need to tap M&A for growth will persist in 2014, while dealmaking landscape becomes more competitive

New EY report finds pharma's M&A capacity up 15%, but down more than 20% when adjusted for higher asset prices

SAN FRANCISCO, Jan. 13, 2014 /PRNewswire/ -- Big pharma stayed on the sidelines in the 2013 mergers and acquisitions (M&A) market despite a continuing need to close a revenue "growth gap" that is expected to reach US$100 billion by 2015. While pharma companies have more "firepower" - or capacity for conducting M&A deals - they now face the dual challenges of higher valuations for attractive assets and relatively less purchasing power when compared to competitors in big biotech and specialty pharma. These and other findings were released today in the 2014 issue of EY's Firepower and Growth Gap report, The shifting balance of firepower.

(Logo: http://photos.prnewswire.com/prnh/20130701/NY40565LOGO-b )

"With strong shareholder returns and robust pipelines at a few companies, big pharma was largely absent from M&A in 2013," said Glen Giovannetti, EY's Global Life Sciences Leader. "As they face significant growth challenges ahead, pharma companies will need to become more acquisitive, but the growing strengths of big biotech and emerging pharma are leading to both increased competition for deals and more expensive targets."

Key findings highlighted in the report include:

  • Pharma's growth gap remains: The projected 2015 growth gap for big pharma - the additional revenue needed to keep pace with the overall drug market - remained essentially unchanged at US$100 billion. The inability of big pharma to close this growth gap was due to both a lack of significant M&A and slowing sales, with revised third-quarter guidance indicating that aggregate 2013 sales are expected to decline by about 1%.
  • Pharma's firepower increases: EY's Firepower Index revealed that big pharma's firepower increased by nearly US$100 billion, or 15%, in 2013. This increase was almost entirely driven by rising equity market valuations, which accounted for more than 90% of the increase.
  • The balance of firepower is shifting: Despite an increase in overall firepower, big pharma's share, when compared to big biotech and specialty pharma, has fallen significantly from 85% in 2006 to 75% in 2012 and 70% in 2013. In addition, as valuations of big biotech and specialty pharma companies outpace those of big pharma, the relative firepower of big pharma (i.e., adjusted for higher target prices) has actually declined by more than 20% over the last year. These shifts should heighten the competition for deals in 2014. Big biotech and specialty pharma have already proven to be significant competitors for assets, with these sectors accounting for more than 80% of M&A activity by announced deal values in 2013.

Implications for 2014 and beyond 
The shifting balance of firepower report identifies several factors and considerations likely to affect M&A in 2014 and beyond:  

  • Acquisitions to hedge pipeline disappointments seen as likely: Among the likely big pharma acquirers in 2014 will be those with growth gaps who decide to hedge potential disappointments in product launches and R&D.
  • Divestitures to pursue growth targets may be seen: Given the rise in target valuations, some big pharma companies may turn to divestitures to boost firepower in 2014. EY estimates that approximately 12 divestitures by big pharma - principally from non-core businesses - could be worth up to US$100 billion in incremental firepower that could be redeployed for M&A.
  • Use it or lose it?: For companies whose firepower is expected to remain the same or shrink, "use it or lose it" may become the focus - driving a surge in M&A activity.

"With both declining relative firepower and a smaller share of the total, big pharma companies need to allocate their limited resources carefully, increasing the importance of robust deal valuations, due diligence and integration," said Jeffrey Greene, EY's Global Life Sciences Transaction Advisory Leader. "To succeed in this environment, firms need the right capabilities, resources and processes. Amid elevated target prices and rigorous investor scrutiny, there is little room for error," adds Greene.

Notes to Editors

How EY's Global Life Sciences Center can help your business

Life sciences companies -- from emerging to multinational -- are facing challenging times as access to health care takes on new importance. Stakeholder expectations are shifting, the costs and risks of product development are increasing, alternative business models are manifesting, and collaborations are becoming more complex. At the same time, players from other sectors are entering the field, contributing to a new ecosystem for delivering health care. New measures of success are also emerging as the sector begins to focus on improving a patient's "health outcome," and not just on units of a product sold. Our Global Life Sciences Center brings together a worldwide network of more than 7,000 sector-focused assurance, tax, transaction and advisory professionals to anticipate trends, identify implications and develop points of view on how to respond to the critical sector issues. We can help you navigate your way forward and achieve success in the new health ecosystem. For additional research, insights and perspectives, visit ey.com/lifesciences or connect with us on our blog at lifesciencesblog.ey.com. You can also follow us on Twitter @EY_LifeSciences.

About EY 
EY is a global leader in assurance, tax, transaction and advisory services. The insights and quality services we deliver help build trust and confidence in the capital markets and in economies the world over. We develop outstanding leaders who team to deliver on our promises to all of our stakeholders. In so doing, we play a critical role in building a better working world for our people, for our clients and for our communities.  
EY refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. For more information about our organization, please visit ey.com.

Greg Kelley

Susan Lavin Jones

Feinstein Kean Healthcare

EY Global Life Sciences Center

+ 1 617 461 4023

+1 732 516 4226

[email protected]

[email protected]

SOURCE EY

More Stories By PR Newswire

Copyright © 2007 PR Newswire. All rights reserved. Republication or redistribution of PRNewswire content is expressly prohibited without the prior written consent of PRNewswire. PRNewswire shall not be liable for any errors or delays in the content, or for any actions taken in reliance thereon.

Latest Stories
Daniel Jones is CTO of EngineerBetter, helping enterprises deliver value faster. Previously he was an IT consultant, indie video games developer, head of web development in the finance sector, and an award-winning martial artist. Continuous Delivery makes it possible to exploit findings of cognitive psychology and neuroscience to increase the productivity and happiness of our teams.
Digital Transformation: Preparing Cloud & IoT Security for the Age of Artificial Intelligence. As automation and artificial intelligence (AI) power solution development and delivery, many businesses need to build backend cloud capabilities. Well-poised organizations, marketing smart devices with AI and BlockChain capabilities prepare to refine compliance and regulatory capabilities in 2018. Volumes of health, financial, technical and privacy data, along with tightening compliance requirements by...
To Really Work for Enterprises, MultiCloud Adoption Requires Far Better and Inclusive Cloud Monitoring and Cost Management … But How? Overwhelmingly, even as enterprises have adopted cloud computing and are expanding to multi-cloud computing, IT leaders remain concerned about how to monitor, manage and control costs across hybrid and multi-cloud deployments. It’s clear that traditional IT monitoring and management approaches, designed after all for on-premises data centers, are falling short in ...
"Calligo is a cloud service provider with data privacy at the heart of what we do. We are a typical Infrastructure as a Service cloud provider but it's been designed around data privacy," explained Julian Box, CEO and co-founder of Calligo, in this SYS-CON.tv interview at 21st Cloud Expo, held Oct 31 – Nov 2, 2017, at the Santa Clara Convention Center in Santa Clara, CA.
Poor data quality and analytics drive down business value. In fact, Gartner estimated that the average financial impact of poor data quality on organizations is $9.7 million per year. But bad data is much more than a cost center. By eroding trust in information, analytics and the business decisions based on these, it is a serious impediment to digital transformation.
In an era of historic innovation fueled by unprecedented access to data and technology, the low cost and risk of entering new markets has leveled the playing field for business. Today, any ambitious innovator can easily introduce a new application or product that can reinvent business models and transform the client experience. In their Day 2 Keynote at 19th Cloud Expo, Mercer Rowe, IBM Vice President of Strategic Alliances, and Raejeanne Skillern, Intel Vice President of Data Center Group and G...
With more than 30 Kubernetes solutions in the marketplace, it's tempting to think Kubernetes and the vendor ecosystem has solved the problem of operationalizing containers at scale or of automatically managing the elasticity of the underlying infrastructure that these solutions need to be truly scalable. Far from it. There are at least six major pain points that companies experience when they try to deploy and run Kubernetes in their complex environments. In this presentation, the speaker will d...
Discussions of cloud computing have evolved in recent years from a focus on specific types of cloud, to a world of hybrid cloud, and to a world dominated by the APIs that make today's multi-cloud environments and hybrid clouds possible. In this Power Panel at 17th Cloud Expo, moderated by Conference Chair Roger Strukhoff, panelists addressed the importance of customers being able to use the specific technologies they need, through environments and ecosystems that expose their APIs to make true ...
The current age of digital transformation means that IT organizations must adapt their toolset to cover all digital experiences, beyond just the end users’. Today’s businesses can no longer focus solely on the digital interactions they manage with employees or customers; they must now contend with non-traditional factors. Whether it's the power of brand to make or break a company, the need to monitor across all locations 24/7, or the ability to proactively resolve issues, companies must adapt to...
In his session at 20th Cloud Expo, Scott Davis, CTO of Embotics, discussed how automation can provide the dynamic management required to cost-effectively deliver microservices and container solutions at scale. He also discussed how flexible automation is the key to effectively bridging and seamlessly coordinating both IT and developer needs for component orchestration across disparate clouds – an increasingly important requirement at today’s multi-cloud enterprise.
Modern software design has fundamentally changed how we manage applications, causing many to turn to containers as the new virtual machine for resource management. As container adoption grows beyond stateless applications to stateful workloads, the need for persistent storage is foundational - something customers routinely cite as a top pain point. In his session at @DevOpsSummit at 21st Cloud Expo, Bill Borsari, Head of Systems Engineering at Datera, explored how organizations can reap the bene...
We are seeing a major migration of enterprises applications to the cloud. As cloud and business use of real time applications accelerate, legacy networks are no longer able to architecturally support cloud adoption and deliver the performance and security required by highly distributed enterprises. These outdated solutions have become more costly and complicated to implement, install, manage, and maintain.SD-WAN offers unlimited capabilities for accessing the benefits of the cloud and Internet. ...
"DevOps is set to be one of the most profound disruptions to hit IT in decades," said Andi Mann. "It is a natural extension of cloud computing, and I have seen both firsthand and in independent research the fantastic results DevOps delivers. So I am excited to help the great team at @DevOpsSUMMIT and CloudEXPO tell the world how they can leverage this emerging disruptive trend."
In this presentation, you will learn first hand what works and what doesn't while architecting and deploying OpenStack. Some of the topics will include:- best practices for creating repeatable deployments of OpenStack- multi-site considerations- how to customize OpenStack to integrate with your existing systems and security best practices.
Security, data privacy, reliability and regulatory compliance are critical factors when evaluating whether to move business applications from in-house client hosted environments to a cloud platform. In her session at 18th Cloud Expo, Vandana Viswanathan, Associate Director at Cognizant, In this session, will provide an orientation to the five stages required to implement a cloud hosted solution validation strategy.