Big Pharma versus small biotech: analysing the financials of Pfizer and ImmunoCellular Therapeutics

This case is available at The Case Centre with reference no. 113-021-1.

The continued consolidation in the pharmaceutical industry has baffled many individuals. Confronted with major threats like patent losses, a depressed economic environment, soaring R&D costs, low productive development pipelines, pricing pressure and generic competition, Big Pharma has struck multibillion dollar deals like the Pfizer - Wyeth acquisition in 2009. Biotech firms, on their side, seem eager to be gobbled up by their conventional large competitors. Billions of dollars have been spent in acquisitions of biotech firms with barely any revenue to show for.

In this case, we contrast small biotech with Big Pharma, which is quite interesting as although they are unmistakeably different, one could simultaneously argue they are quite similar but only find themselves in different lifecycle stages. Furthermore, small biotech and Big Pharma are getting more and more intertwined through alliances and joint ventures, and their business is affected by some common factors. How do we draw robust conclusions on the financial performance of these firms? We first provide a brief discussion of some fundamental industry dynamics as understanding the business model is a prerequisite for any sound interpretation of financial statements and ratios. This case equally explains why so much M&A activity takes place within pharma and between the pharmaceutical and biotech industries.

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