Life Sciences Roundtable: Strategy and Financing

Judy Lewent, Joe Fuller, David Scharfstein, Rick Passov, Cathrin Petty, Charles Simmons, Jeff Greene, Pete Crnkovich and Carolyn Buck Luce

Journal of Applied Corporate Finance, 2009, vol. 21, issue 2, 8-35

Abstract: In light of the challenges facing the pharmaceutical industry, a distinguished group of pharma executives and strategic and financial advisers discusses the following corporate decisions: Strategy: What business model is most likely to maximize long‐term shareholder value? For example, is diversification by big pharma into areas like consumer healthcare and generics a reliable way to create sustainable value? Capital allocation: What are the best methods for evaluating investments in pharma R&D, and for deciding which programs should be terminated and which assets divested? If conventional DCF isn't much help in a world where R&D outcomes are so uncertain, what about proposed models like real options? Corporate governance and incentive systems: Should big pharma continue to outsource ever more of its R&D functions to biotech and venture capital? Or can it overcome the problems associated with size by creating more decentralized business units and trying to replicate the accountability and incentives of smaller biotech firms? Capital structure and payout policy: Are the large cash and equity positions and minimal payouts of big pharma, typically justified as cushioning the uncertainties associated with pharma R&D, likely to be the value‐maximizing capital structure in the future? With many biotechs struggling and venture capital scarce, where are the new sources of capital for the industry? And can future deals be structured in ways that help bring about higher returns for big pharma as well as the R&D providers? Disclosure: What should management tell investors to help ensure that their companies' policies and promising investments are reflected in their stock prices?

Date: 2009
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