News: KPMG on Pharma's M&A Plans: A View From the Top

Source: PharmaManufacturing.com

Jul 13, 2011

On the hunt for new therapies and new customers to drive growth, pharmaceutical executives will step up acquisition activity in the coming year, according to a recent survey by KPMG LLP, the U.S. audit, tax and advisory services firm.

In the KPMG survey, 83 percent of executives said it is likely their company will be involved in a merger or acquisition as a buyer or seller in the next two years.  Further, 41 percent of executives surveyed said the largest area of spending in the next year would be for acquisitions, followed by new products and services, at 38 percent, and research and development, at 38 percent. Similarly, a strategic acquisition was cited as the highest priority investment area by 41 percent of executives surveyed, followed by expansion into new markets by 22 percent.

“Mergers and acquisitions will be exceptional forces over the next two years, as industry executives look to gain access to new products and markets, and new revenue streams,” said Ed Giniat, KPMG U.S. chair of pharmaceuticals. “Industry leaders have their work cut out for them to offset the patent losses and regulatory and pricing pressures.”

According to the KPMG survey, 58 percent of executives identified patent expirations of key therapies and generic competition as the top issue facing their company, followed by increasing regulation and enforcement at 45 percent, and lack of new products in the pipeline at 34 percent.
 “The good news is companies have cash to invest in or acquire new medicine breakthroughs, or markets and customers to drive some growth,” said David Blumberg, KPMG national advisory pharmaceutical sector lead partner.

In fact, more than three quarters of executives said their organizations had significant cash on hand and half of them said they expect to increase capital spending over the next year. Further, more than a third said investment was already underway, while an additional 36 percent said investment would be made before the end of the first quarter of 2012.

“Today, pharmaceutical leaders are pursuing geographic expansion in a major way to spur organic growth,” said KPMG’s Blumberg.

Asked what single initiative their company’s management would spend the most energy on in the next two years, 23 percent said investing in organic growth, followed by 16 percent who said cost reduction initiatives, and 16 percent who said improving operation processes and related technology.

While pharmaceutical executives focus on growth initiatives, they do so “against the backdrop of a very tough economy,” said KPMG’s Giniat. “They are not projecting an economic turnaround for years.”

In fact, when asked about the timing of a full recovery, 31 percent said by the end of next year, 27 percent said not until the end of 2013, and 27 percent said not until the end of 2014.

According to the KPMG findings, most executives expect just moderate improvements in revenue and hiring. A year from now, 48 percent of executives said revenue would be moderately higher, with just 16 percent expecting significantly higher revenue. 

On the outlook for headcount, 41 percent of executives said they plan to add personnel next year, while 15 percent said by the end of 2013, and 23 percent by the end of 2014 or later. Interestingly enough, 23 percent never expect hiring to return to pre-recession levels.

The KPMG PHARMACEUTICAL INDUSTRY PULSE SURVEY

The KPMG survey was conducted in May/June and reflects the responses from 100 senior executives in the U.S. pharmaceutical industry. Based on revenue in the most recent fiscal year, 52 percent of respondents represent U.S. companies with annual revenues of more than $10 billion, 34 percent with annual revenues of $1 billion to $10 billion, and 14 percent with annual revenues of $100 million to $1 billion.

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