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.