$35 billion of working capital could be freed up by Big Pharma, says E&Y report

An analysis of the 16 largest (by sales) US and European pharmaceutical companies and working capital management, finds that the majority of Big Pharma players have a significant opportunity to release cash from working capital - between $17.0 billion and $35.0 billion, the equivalent of 3% to 7% of sales. This opportunity is distributed across the various components of working capital, with 40% from payables and 30% each from receivables and inventories, says the study's author, financial services group Ernst & Young.

With the rate of sales growth and pipeline productivity for the large drugmakers slowing and pricing pressures intensifying from generic competition, customer consolidation and government health authorities' cost-containment policies, the big pharma business model and stock prices are under siege.

In this environment, the pharmaceutical industry's increasing attention on working capital has taken on new urgency. The analysis notes that the industry has made progress in reducing levels of working capital since 2000, but in the last two years 70% of the achievement gains in the previous five years have reversed.