Heading for a fall

The CPhI exhibition in Frankfurt opened to the cacophony of world stock markets crashing down around our ears. And although nobody actually threw themselves from the rooftops in despair, the uncertainty of the situation was bound to detract from the normally buoyant mood of the annual industry gathering.

Some of the exhibitors were affected more directly than others. One I spoke to was in the throes of renegotiating a multi-million dollar loan taken out five years ago to fund construction of a new plant. Although the company is sound, with record sales, a strong forward order book, healthy cash reserves and a growing workforce, finding alternative financing may not be easy in the current climate - and certainly not at the highly favourable terms of the original loan.

The company may now have to use its cash position to pay off a chunk of the original loan rather than spending it on a planned further major investment next year.

Other companies may not be hit so immediately, but many thought the credit crunch could have a profound, long-term influence on the dynamics of the pharma supply chain. For example, credit is significantly easier to obtain in India and China than it is in Europe and the US, which could result in a further move in manufacturing investment to the low-cost economies.

Attitudes to drug development are also likely to be more cautious, some felt, with companies likely to pull the plug on r&d projects sooner rather than later and to look carefully at the cost of any outsourcing activities.

And what of the early stage biotech companies whose ambition thus far is confined to slowing the rate of cash burn, never mind breaking even?

Heavily reliant on venture capital for survival, their hopes of being snapped up by a larger enterprise may now have been dashed as speculative investment is likely to be the first casualty of any belt-tightening.

But without the investment, where will the drugs of tomorrow come from? Without the small, spin-out companies where will big pharma go to fill its pipelines or find the technologies to create tomorrow's blockbusters?

Not unlike the housing market, if no one can afford to get on the bottom rung of the ladder, nobody else can climb any higher.

Perhaps the time has now come to focus less on keeping the shareholders happy and more on keeping a foothold in the future.