2013 Pharma and Biotech Financial Report - Pharmaceutical Executive


2013 Pharma and Biotech Financial Report

Pharmaceutical Executive

Big Pharma's future

The business outlook for pharma companies is mixed, as pharma companies struggle to realign themselves to a new business model that will work. The solution will be different for each company.

Although the pharmaceutical industry has been less affected by global economic conditions compared to most industries, going forward the impact will be more prominent as governments attempt to control healthcare costs as part of their deficit reduction efforts. The revenue challenges will be tied directly to the difficulties in getting drugs approved, reimbursement challenges, patent expirations, weak product pipelines, and failing business models.

The stock market has partially forgiven the ethical pharma industry due to an overall bullish attitude toward the equity market. But real turnaround in valuations will require structural changes that investors believe will be effective. Generic pharma companies, however, are being treated well by investors, but with caution as the revenue cliffs that once were just the terrain of the ethical pharmaceutical companies are now migrating to the generic sector as well.

Pharma M&A will continue to be active, but modest in terms of the size of deals. There is a desire to make deals strategically focused. Although there have been a few announced large deals recently, such as Perrigo/Elan, Amgen/Onyx and Actavis/Warner Chilcott, these are not mega transactions.. We do not see many mega deals happening in the next couple of years. We do expect companies to continue to divest non-core assets and review established product lines.

The major debt refinancings were completed quite a while ago and new debt issuance will depend on the number and size of M&A transactions that will have to be financed. Non-investment grade debt will be issued more sporadically.

Equity issuance will continue to be modest primarily because pharma companies generally do not need equity. So even though the IPO and general equity issuance markets have revived, pharma issuance of public equity will remain limited.

Biotechs bask in success

Biotech companies are continuing to demonstrate their ability as a group to be effective at developing new drugs and diagnostics methods, but the challenges that face drug development generally will confront biotech companies as well.

Historically, the biotech industry's relationship with the debt and equity markets has been volatile. The good news is that the current love affair that the equity markets have with biotech companies shows no sign of slowing down on both the stock market and the equity issuance fronts.

The primary biotech M&A theme will continue to be pharma and big biotech acquisitions of biotech companies for pipeline enhancement. Historic M&A volume has been modest as, pharma and big biotech continued to use non-M&A methods to achieve their pipeline goals, much to the detriment of biotech companies seeking an exit. M&A volume will likely continue to be modest, particularly with the existence of numerous external uncertainties that will tend to dampen biotech M&A for a period of time. The heavy activity will be in the form of partnering, licensing and shedding of more non-core assets.

Peter Young is President and Managing Director of Young and Partners, an international investment bank serving the pharma, biotechnology, and chemical industries. He can be reached at


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