Opportunity Knocks for Big Pharma in Credit Crunch

A good article regarding the impacts of the economic situation on the Pharma market over at FierceBiotech...

The primary consequence of the credit crunch for non-financial companies is the loss of access to cheap debt

LONDON, Oct. 8, 2008- The key impact of the credit crunch on the corporate world is the abrupt loss of cheap debt. During the late 1990s and 2000s companies across all industries have exploited easy access to cheap debt to amplify or ‘leverage' their return to investors. However, triggered by the sub-prime crisis and the subsequent collapse of big name financial institutions, banks have no choice but to protect their own capital and stop lending - turning off this supply of cheap debt.

This leaves those companies that have taken on debt in the extremely uncomfortable position of having to either rapidly pay off their debts (‘deleveraging') or re-secure new debt at much higher interest rates - potentially threatening the viability of the firm. Datamonitor believes that large pharmaceutical companies have wisely stayed out of the cheap debt game and as a result, the credit crunch will actually play out as a net positive for an industry much in need of good news, according to Datamonitor head of company analysis Dr. Chris Phelps. "Pharma companies are not only expected to weather the financial storm successfully but to also use this period to exploit their unique cash strength by embarking on an acquisition spree."

link to full article