Credit Crunch May Have Silver Lining For Pharma

Although the credit crunch is portending hard economic times around the globe, it may work to the advantage of large pharmaceutical companies in their negotiations with the biotechnology firms that provide many of their new products. According to Datamonitor, a London-based market research firm, the average top-20 drug company has access to a healthy $7.5 billion in cash and equivalents, meaning the tight credit market is not a problem for such firms. Biotechs, on the other hand, depend on a steady stream of outside funding to discover new therapies, and the sudden disappearance of cheap credit threatens their existence. Indeed, James C. Greenwood, CEO of the Biotechnology Industry Organization, says many of the 300 to 400 public biotech companies are operating with less than one year's worth of cash remaining. According to Chris Phelps, head of company analysis at Datamonitor, large drug companies are now the only serious "buyer in the room" for small firms that need cash. "Under the cover of the credit crunch, big pharma will swoop repeatedly to acquire substantial biotech targets," he predicts.