Opportunity knocks for Big Pharma as credit crunch takes ever stronger hold

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, says market research firm Datamonitor.

This leaves those companies that have taken on debt in the extremely uncomfortable position of having to either rapidly pay off their debts (de-leveraging) or re-secure new borrowing 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, says Datamonitor head of company analysis 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," he adds.

Until very recently, the drug industry's stock market performance has been faltering compared to other sectors. The reasons for its poor performance relative to other industries are well known and deep-seated. Fundamentally, the pharmaceutical industry as a whole has failed to discover and develop sufficient numbers of high-value and innovative products to replace the drugs facing patent expiry and maintain its historical growth rates.