November 2014 | 11 th edition

Life sciences Capital Confidence Barometer

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November 2014 | 11th edition

Capital Confidence Barometer: Life Sciences

Strong M&A momentum fueled by bullish deal pipelines

The Global Capital Confidence Barometer gauges corporate confidence in the economic outlook and identifies boardroom trends and practices in the way companies manage their Capital Agenda — EY's framework for strategically managing capital. The Barometer analyzes both cross-industry and sector-specific populations and includes interviews with biotech and pharmaceutical senior executives. Here are some of the key findings from the 11th Global Capital Confidence Barometer report:

EY - Capital Confidence Barometer – Life Sciences

Fifty percent of biotech and pharma executives view the global economy as improving, versus a record 74% six months ago in our April survey. However, those who view the global economy as “stable” jumped to 45%, versus 21% in April. Geopolitical concerns are considered the greatest economic risk by 36%, up slightly from April.

EY - Capital Confidence Barometer – Life Sciences

While fewer respondents expect markets to move higher, confidence in delivering earnings reached a new high (82%). This confidence translates into more ambitious growth plans, with access to capital and low interest rates fueling growth ambitions and M&A.

Investing capital was reported as a lower priority as companies shift focus to tapping both capital markets and higher valuations to “lever up” as needed for acquisitions.

Please indicate your level of confidence in the following at the global level:

EY - Capital Confidence Barometer – Life Sciences

EY - Capital Confidence Barometer – Life Sciences

Growth remains a top focus for pharma and biotech companies with an emphasis on organic growth. The outlook for organic growth via R&D and product introductions has improved from 22% in April to 38% as the sector welcomes a new wave of FDA approvals.

What is the primary focus of your company’s organic growth over the next 12 months?

EY - Capital Confidence Barometer – Life Sciences

EY - Capital Confidence Barometer – Life Sciences

Sixty-five percent of respondents said that less than 25% of their growth is explicitly assigned to acquisitions, versus 53% of respondents in April's survey. Nevertheless, M&A activity is up as companies — specialty pharma in particular — take advantage of greater firepower. Close to two thirds of respondents expect deal pipelines to increase over the next 12 months — 33% have four or more deals in the pipeline versus 25% just six months ago with the focus predominantly (67% of the respondents) on deals in their respective core sectors.

EY - Capital Confidence Barometer – Life Sciences

With full M&A plates — 64% expect deal pipelines to increase over the next 12 months — biotech and pharma respondents showed greater concern regarding their execution and integration capabilities for deals. Integration post-deal remains the top challenge with 34% citing this concern; 32% also cited inadequate internal resources to execute deals.

Respondents also cited overpaying for assets as the most significant issue for deals not meeting expectations with rising valuations and deal premiums likely to have contributed to P/E concerns.

How do you expect your deal pipeline to change over the next 12 months?

EY - Capital Confidence Barometer – Life Sciences

EY - Capital Confidence Barometer – Life Sciences

Recent high-profile examples of activist intervention on pharma deals in the US have elevated the influence of shareholder activists in boardroom discussions, not only in the US but also in other markets.

The Barometer also found that activists have driven greater boardroom focus on cost reduction to improve profitability and have elevated the importance of a disciplined approach in managing costs. 35% also said that strategic divestments are increasingly driven by shareholder activism versus 25% in the cross-industry population.


Contact us for a conversation about your capital strategy

Jeffrey Greene
Global Life Sciences Transaction Advisory Services Leader
+1 212 773 6500