Cash Rich, Drug Poor: Pharma & The Credit Crisis
3 CommentsBy Ed Silverman // October 14th, 2008 // 7:15 am
The credit crunch may work to pharma’s advantage, according to Datamonitor. The average net debt as a proportion of capital employed for the top 20 drugmakers is 6 percent, while the average net debt carried by financial institutions is 95 percent, suggesting the fallout from the credit crisis will not be as significant in the pharmaceutical industry as in other more highly leveraged sectors.
In addition, the average top 20 drugmaker has access to $7.5 billion in cash, equivalents and short-term investments, indicating the pharma sector as a whole is in a good position to fund operations and expansion, such as acquisitions (please click on the chart to get a closer look). Of course, most drugmakers have little choice but to snap up another company, given their dreary pipelines.
Christopher
Some would argue that companies in many industries, not just pharma, are far better placed to weather the financial storm. (Employees are a different matter.) Because of the willingness to take on such high levels of debt in supposedly better times companies in the financial world have been hammered. More prudent, longer term financial management in non-financial industries has left them less exposed. Its also interesting to see the difference in investment strategies in the companies on the chart.
I wonder what Datamonitor charged for that insight?
Jim White
Or they will do as Abott recently announched, and buy back their stock, all while trimming or flat-lining their R&D budgets.
Tim Scott
The pharma industry is not only made up of large pharma that are publicly held but also small and virtual pharma companies that are VC backed and mid-sized and microcap companies, many of which are public. The VC-backed companies are in a good position because the VCs long ago gave up on IPOs and are now looking to package and sell their companies to Big Pharma. This is a good relationship: the big Pharmas have cash but no innovation; the small/virtual pharmas have the innovation and want to sell it. The mid-sized and microcap pharmas are more of a question mark. Many are public but still are cash starved. They can’t access money in the public markets and the private sources, like PIPES, are no longer available. These are the companies that I’m concerned about.