Squeezed for cash - Pharmaceutical Technology

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PharmTech Europe

Squeezed for cash
Big Pharma's efforts to reduce working capital will hurt CMOs for years to come.

Pharmaceutical Technology Europe
Volume 21, Issue 12

Jim Miller
We have reached the edge of the great pharmaceutical patent cliff — those years when a large number of blockbuster drugs lose patent protection and are open to generic competition. Right on schedule, the major bio/pharma companies are making the big strategic and financial moves that the industry has been expecting: big mergers, massive staff reductions (especially in sales and marketing), and an intensified focus on inlicensing and acquisition of promising drug candidates from smaller companies.

As well as preparing for the looming loss of blockbuster products, companies have also had to contend with the implications of the global financial crisis. The near meltdown of the financial system has heightened the respect for risk and created the sense that you can never have too much cash. Cash flow has not been a problem for Big Pharma for decades and there has been ready access to capital markets: five of the biggest bio/pharma companies have raised more than $80 billion (€54 billion) this year to fund acquisitions and other corporate activities, according to PharmSource. Even so, pharma companies are focusing on cash flow management as never before and working capital (cash used to finance current assets such as inventory and accounts receivable) has been a principal target in these efforts. This is having a major negative impact on CMOs.


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