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Moody's: Stable outlook for global pharmaceutical industry due to return to growth in 2013

Global Credit Research - 23 Apr 2013

Paris, April 23, 2013 -- The outlook for the global pharmaceutical industry will remain stable over the next 12-18 months, reflecting the expectation of the sector returning to earnings growth in 2013, says Moody's in its latest Industry Outlook report on the sector published today. Moody's has had a stable outlook for the global pharmaceutical industry since September 2012.

The new report, entitled "Global Pharmaceutical Industry: Return To Earnings Growth In 2013 Keeps Outlook Stable", is now available on www.moodys.com. Moody's subscribers can access this report via the link provided at the end of this press release.

"The global pharmaceutical industry is likely to experience a return to earnings growth in 2013 as fewer top-selling drugs lose their patent protection compared with last year, with a projected EBITDA growth for rated drug companies of around 1% in 2013 on average," says Marie Fischer-Sabatie, a Vice President - Senior Credit Officer in Moody's Corporate Finance Group and author of the report. "We also anticipate a further acceleration in earnings growth in 2014 as the negative effects of the patent cliff recede."

Although generics-focused companies will continue to benefit from patent expirations in 2013, this will not be to the same extent as in 2011-12, when a slew of blockbuster drugs came off patent. While generic drug use is rising globally, ongoing price erosion and higher costs associated with producing more complex drugs are likely to cut into profits.

Moody's also notes that the quality of late-stage drug pipelines is improving overall. A number of promising and innovative drugs could drive new sales growth in 2013-14, including oral treatments for hepatitis C, easier-to-administer drugs for multiple sclerosis and drugs that are more efficacious to treat certain types of cancer.

However, US deficit reduction efforts and persistent pricing pressures from healthcare reforms, in Europe in particular, will continue to weigh on the revenues of pharmaceutical companies. Moody's expects ongoing healthcare reforms in Europe to result in sales declines around the mid single-digit percentage points for big pharma companies in 2013. Further weakness in southern European markets would be unlikely to result in ratings pressure on drug companies as these markets account for a relatively small portion of their total sales and receivables.

The regulatory pathway for biosimilars, which are copies of biotech drugs, is likely to become clearer in the US, opening the door to regulatory filings this year. Biotech drugs are manufactured in a living system such as plant or animal cells, as opposed to traditional pharmaceutical drugs, which are made by combining chemical ingredients. In Europe, the creation of a pathway for copies of more complex biotech drugs could lead to at least one biosimilar being ready for launch when the patent on Remicade expires in Europe in August 2014. Merck & Co., Inc. (Aa3 stable) markets Remicade in Europe while Johnson & Johnson (Aaa stable) markets the product in the larger US market.

M&A activity is likely to pick up in 2013. Some companies, such as Roche Holding AG (A1 stable), Pfizer (A1 stable) and Novartis (Aa3 stable), have now deleveraged following large transactions and could resume acquisitions, as they have built up large cash balances. However, we would expect such acquisitions to generally be small to mid-sized rather than transformational.

Moody's could change its outlook to positive if it believes that EBITDA growth will exceed 4%, which could occur if sales of new products grow quickly and if pricing pressure in the EU abates, although the rating agency views the latter as unlikely in the next few years. Conversely, Moody's could shift its outlook to negative if legislative changes in the US are significant or if emerging-market growth falters as sales in emerging markets are important offsets to the sales declines that pharmaceutical companies face in developed markets from pricing pressure and patent expirations. Such developments would cause the rating agency to revise lower its expectation for EBITDA growth to below 1%, a scenario the rating agency views as unlikely in the next few years.

Subscribers can access this report via this link: http://www.moodys.com/viewresearchdoc.aspx?docid=PBC_152164

NOTE TO JOURNALISTS ONLY: For more information, please call one of our global press information hotlines: London +44-20-7772-5456, New York +1-212-553-0376, Tokyo +813-5408-4110, Hong Kong +852-3758-1350, Sydney +61-2-9270-8141, Mexico City 001-888-779-5833, São Paulo 0800-891-2518, or Buenos Aires 0800-666-3506. You can also email us at mediarelations@moodys.com or visit our web site at www.moodys.com

Marie Fischer-Sabatie
VP - Senior Credit Officer
Corporate Finance Group
Moody's France SAS
96 Boulevard Haussmann
Paris 75008
France
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Eric de Bodard
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Releasing Office:
Moody's France SAS
96 Boulevard Haussmann
Paris 75008
France
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Moody's: Stable outlook for global pharmaceutical industry due to return to growth in 2013
No Related Data.

 

© 2014 Moody's Corporation, Moody's Investors Service, Inc., Moody's Analytics, Inc. and/or their licensors and affiliates (collectively, "MOODY'S"). All rights reserved.

 


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