Cash on prescription 2016

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Cash on prescription is part our annual series of industry reports, based on EY research on working capital (WC) management. Among the findings in our latest Cash on prescription, we report that pharma companies have between US$22 billion and US$47 billion of cash unnecessarily tied up in WC processes.

With revenues under pressure, the pharmaceutical industry has continued to evolve rapidly — companies are bringing new products to market, reshaping their portfolios of businesses and optimizing their cost bases, while seeking to grow earnings and improve cash returns to shareholders.

Against this challenging background, big pharma companies reported weaker working capital (WC) performance in 2015 compared with 2014, with cash-to-cash (C2C) rising 2%. 2015’s setback partly reversed the previous two years’ progress. However, big pharma still managed to recover more than the ground lost in WC performance during the previous five years (2007–12). The group’s C2C was 2% lower in 2015 than in 2007.

EY - Chart depicting change in working capital metrics across the industry between 2014 and 2015
Note: DSO (days sales outstanding), DIO (days inventory outstanding), DPO (days payable outstanding) and C2C (cash-to-cash), with metrics calculated on a sales-weighted basis.
Source: EY

At the same time, progress in WC remained far from uniform, with some businesses continuing to improve their performance and others failing to do so.

EY - Chart depicting the number of companies and percentage change in working capital metrics, 2015 versus 2014
Note: DSO (days sales outstanding), DIO (days inventory outstanding), DPO (days payable outstanding) and C2C (cash-to-cash), with metrics calculated on a sales-weighted basis.
Source: EY

The wide variations in WC performance among pharmaceutical companies point to significant potential for improvement. While these performance gaps may result partly from varying business models, they also highlight fundamental differences in the intensity of management focus on cash and the effectiveness of WC management processes.

To capitalize on this opportunity, pharmaceutical companies will need to embrace more substantial and sustainable changes in the way they do business and manage their WC. Businesses must become even more responsive and resilient, while delivering continuous process improvements and cost reductions.

To achieve this, companies will need:

  • A strategic focus on WC throughout the year, with the whole business engaged and incentivized to drive improvement
  • Increased responsiveness to change, with lean and agile manufacturing and supply chain solutions deployed for different products or market segments, as well as thorough cross-functional cooperation and effective collaboration with wholesalers and other pharmaceutical buyers
  • Supply chains that are resilient, through robust risk management policies, alternative sourcing and enhanced visibility across the end-to-end supply chain
  • Strong discipline in terms and transactions, internal controls over cash and WC, and appropriate performance measures in place
  • Clear understanding and effective management of the complex and evolving trade-offs among cash, costs, delivery levels and the risks that each company must take

WC improvement initiatives are typically earnings-accretive. In addition to increased levels of cash, significant economic benefits may arise from productivity improvements, reduced transactional and operational costs, lower levels of bad and doubtful debts, and reduced inventory obsolescence. The wide variations in WC performance between the pharmaceutical companies in our study (see Methodology) indicate there is significant potential for improvement that we estimate to be up to US$47 billion in aggregate.


This report is based on a review of the WC performance of the 15 largest pharmaceutical companies (by sales) headquartered in the US and Europe, representing almost half of the world pharmaceutical market.

The review of WC performance is both industry- and company-specific and uses metrics based on publicly available annual financial statements.