Thursday, October 09, 2008

Cash makes Big Pharma king

Pharmaceutical 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”.

This is the view of analysts at Datamonitor who have issued a report noting that the present financial difficulties has led to “the abrupt loss of cheap debt”. In the last decade, companies in other industries have exploited easy access to cheap debt to leverage their return to investors but the the sub-prime crisis in the USA and the collapse of big name financial institutions means “banks have no choice but to protect their own capital and stop lending”.

However the 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 Chris Phelps. He notes that a lack of innovation, coupled with increased regulatory scrutiny and tougher cost-containment measures from payors to drive down prices, “has made the healthcare environment more difficult to operate in than it has ever been before”.

These negative long-term pressures have already been fully reflected in pharma’s stock market performance, the study notes, and between January 2007 and May 2008, the Dow Jones US Pharmaceutical Index fell by 10%, while the DJ Industrial Average “remained broadly unchanged”. However, the markets “have clearly recognised the balance sheet strength of pharma in the midst of the credit crunch”, Datamonitor notes, and there has been a recent reversal in stock market fortunes.


1 comment:

Lydia said...

I'm sure most people think the pharma industry is part of the medical community, but most of the producers of these drugs do no research and have no degrees in medicine. It is legal drug-pushing, and pushing it on the doctors is the most profitable.The pharma industry has enough profit to bail out the bankers.