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Financial Assessment of the Global Pharmaceutical and Biotechnology Industry 

  • February 2013
  • -
  • Frost & Sullivan
  • -
  • 61 pages

Summary

Table of Contents

Financial Management is the Key Strategy for Sustainability

This financial assessment study analyzes the financial ratios of public companies across the globe in the pharmaceutical and biotechnology industry. The research objectives are to rank companies based on their financial and risk management while also identifying key trends that can impact the performance of industry participants over the next year. Those analyzed include 718 publicly-listed pharmaceutical and 482 publicly-listed biotechnology companies across the globe. To assess the financial performance, ratios are divided into four categories: profitability, liquidity, activity (turnover), and solvency. Top performers in each industry are also highlighted.

The Key Issues/Challenges Faced by Industry Participants in the Pharmaceutical and Biotechnology Industry Include:

•The global economic slowdown
•Regulatory compliance
•Reducing profitability
•Increasing R&D costs
•Pricing pressures
•Counterfeit business

Financial Analysis of the Pharmaceutical and Biotechnology Industry

1. Margin Analysis
•The pharmaceutical industry has generally witnessed smaller margins due to increasing competition from generics, pricing pressures, and decreasing healthcare spending.
•In the biotechnology industry, companies within low revenue range and relatively new products have witnessed negative margins because of the heavy investment in R&D and SG&A (selling and general expenses).

2. Profitability Analysis
•Companies with a large portfolio of drugs have seen higher profitability in the pharmaceutical industry.
•The long timelines and accumulating expenditures incurred before a drug is commercialized is making the biotechnology industry less profitable in initial years, even resulting in negative margins for companies that are smaller in terms of revenue.

3. Turnover Analysis
•In both the pharmaceutical and biotechnology industries, companies with lower revenue had poor turnover ratios because of the huge investments made in assets and in the development of the product.

4. Cash Reserve Analysis
•In the pharmaceutical industry the smaller companies in terms of revenue are increasing their cash reserve as a percentage of their assets.
•In the biotechnology industry, both small and large companies in terms of revenue are increasing their cash reserve as a percentage of their assets.

5. R&D to Sales Ratio
•Both the pharmaceutical and biotechnology industries did not witness a great variation in the R&D to sales ratio in 2011 compared to the previous year. Though there was a general decline in the overall sales in both the pharmaceutical and biotechnology industries, the R&D expenses were not considerably reduced.

Who Will Benefit?

•Pharmaceutical & biotechnology companies
•Private equity
•Venture capital investors
•Fund managers
•Retail investors
•Sovereign wealth funds
•Hedge funds
•Insurance funds and other members of the investing community

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