Overall, the liquidity and credit quality of the industry’s financial investments remains strong, with nine of the largest US drugmakers and biotechs reporting a combined total of over $105 billion of dash and investments as of June 30.

But the majority of the cash is held outside the US and may be subject to negative tax consequences if it is tapped for US cash needs. “Despite impressive liquidity, offshore cash is unlikely to be used for most purposes unless a company is willing to incur significant tax consequences,” says Moody’s senior vp Michael Levesque.

He adds that industry debt is rising, which he calls a “curious phenomenon” at a time when cash balances are high, suggesting companies are taking on debt to fund US cash needs, including shareholder dividends and share repurchases. This is an interesting addition to an earlier post about the possibility that pharma’s strong cash position could fund acquisitions.

In fact, Levesque speculates the rise in gross debt may accelerate as drugmakers pursue acquisitions. According to Moody’s, the industry’s gross debt level rose nearly $28 billion over the 18 months ended June 30, 2008, totaling $83 billion.