Big Pharma is too big into debt. At least that's the conclusion of a new report from Moody's Investors Service. The ratings group says that drugmakers' credit reports don't look so great these days--largely because their debt load is more than twice as large as it was three years ago.
Industrywide, debt grew to $270 billion by the end of 2009, up from $124 billion three years prior. That's an increase of 117 percent, Pharmalot points out.
And it's an increase that's outpacing growth in cash reserves. Over the same time period, industry cash rose to $233 billion from $193 billion. That's just 21 percent growth.
The changes make sense, given the dealmaking Big Pharma has been up to over the last couple of years. Whether in the form of one big deal or a series of small ones, M&A takes money--and that means shelling out cash and going into debt. Just think of the multibillion-dollar bond sales floated by Novartis ($5 billion), Roche ($16 billion), Pfizer ($13.5 billion), and so on.
But the key question is whether the big growth in debt load will cause more credit-rating downgrades. The ratings operation has already notched a few drugmakers downward; Pharmalot says the average pharma rating now is A1, down from Aa2 in 2006. Moody's says in its report that pharma's good credit is "at risk," but doesn't make any new moves.