Written on January 15, 2013 by Claire Bastien in Uncategorized

At the recent J.P. Morgan Healthcare Conference in January 2013, analysts predicted that 2013 would again see mergers and acquisitions featuring Big Pharma. The allure of the Big Pharma companies has long been understood to center around deep pockets, powerhouse R&D efforts and long experience with the regulatory acts and commercialization. But BCG’s new survey, unveiled at the J.P. Morgan Healthcare Conference, concludes that many of the traditional attractions of the giants have lost their luster, essentially getting “commoditized” along the way.

Merck CEO Kenneth Frazier affirmed two commitments at the J.P. Morgan Healthcare Conference: “I don’t see us looking for another large combination,” Frazier said (as quoted by Bloomberg). “The conclusion we’ve reached at Merck is that the sweet spots are really in the early stage.” With the latter comment, Frazier sits right smack in the middle of his peers.

Not one drug maker executive expresses a desire to mega-merge these days. Analysts are saying $10 billion-plus deals will return. The Novartis CEO Joe Jimenez told Bloomberg that Novartis may make some deals:  “You may see us do more bolt-ons … between $2 billion and $4 billion, not more than that.”

This is consistent with a recent Ernst & Young report “Closing the gap? Big pharma’s growth challenge and implications for deals”

Closing the gap? Big pharma’s growth challenge and implications for deals

Specifically pharma’s attempts to fill the growth gap will be made more difficult by a second gap that the industry faces: the firepower gap. Ernst & Young define “firepower” as a company’s capacity for conducting M&A deals.

company’s capacity for conducting M&A deals

They estimate that, for the 16 largest US, European and Japanese pharma companies by revenue, the firepower has declined by 23% between 2006 and 2012.

However, the next tier of companies — specialty pharma and big biotech firms with 2012 revenues between US$1 to 20 billion — has seen its firepower increase.


Helen Wright May 10, 2013 - 5:22 am

There are two issues: what the terms denote, and how you assess the accuracy/utility of a set of projections. I’m not remotely expert enough to talk about how the assessment should be done for pharma projections (or whether how it’s currently being done is adequate); I was just pointing out that these terms when used by “experts” have the meanings that “experts”, rather than colloquial usage, define them to have, in the same way that the term “function” means different things to mathematicians, to computer programmers and people in general.

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