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Rating Action:

Moody's affirms Bristol-Myers at A2; outlook remains negative

05 Oct 2020

New York, October 05, 2020 -- Moody's Investors Service ("Moody's") affirmed the ratings of Bristol-Myers Squibb Company ("Bristol") including the A2 senior unsecured long-term rating and the Prime-1 commercial paper rating. The outlook remains negative.

These actions follow the announcement that Bristol will acquire MyoKardia, Inc. for approximately $13.1 billion, to be funded with a combination of cash on hand and new borrowings. Bristol reported approximately $22 billion of cash and fixed income investments as of June 30, 2020.

"The acquisition is credit negative based on its rich valuation and the use of incremental debt to fund a development stage company with negative earnings and cash flow," stated Michael Levesque, Senior Vice President. "The deal also pushes out Bristol's planned deleveraging timeframe by one year, from 2023 to 2024," continued Levesque.

However, the affirmation reflects Bristol's solid operating performance with good growth in its core pharmaceutical products, strong free cash flow of over $10 billion per year, and progress at resolving patent challenges on Revlimid and Eliquis.

Ratings affirmed:

Senior unsecured Bank Credit Facility at A2

Senior unsecured Commercial Paper at P-1

Senior unsecured notes at A2

Backed Revenue Bonds (issued by Onondaga County Industrial Dev. Agy., NY) at A2

Backed Revenue Bonds (issued by P.R. Ind Tour Ed Med & Env Ctl Facs Fin Auth) at A2

Backed Revenue Bonds (issued by P.R. Ind Tour Ed Med & Env Ctl Facs Fin Auth) at P-1

Senior Unsecured Shelf at (P)A2

Subordinate Shelf at (P)A3

Preferred Shelf at (P)Baa1

Outlook actions:

Outlook remains negative

RATINGS RATIONALE

Bristol's A2 rating reflects its large scale and solid positions in immuno-oncology, hematology and immunology. Products like Revlimid and Eliquis will continue strong growth and recent pipeline launches like Reblozyl and Inrebic will also expand revenue. Following loss of market share for Opdivo in lung cancer, growth will steadily rebound as its product label continues to expand based on successful clinical trials. Bristol's free cash flow will remain robust at over $10 billion per year. Key pipeline opportunities include TYK2 in autoimmune disorders and MyoKardia's mavacamten in hypertrophic cardiomyopathy.

The rating is constrained by high revenue concentration in Revlimid, Eliquis and Opdivo, which will total over 60% of Bristol's revenue for the next several years. Although not imminent, large patent cliffs will considerably dampen Bristol's revenue beginning in 2026 and likely continue to place a high reliance on acquisitions, evidenced by the MyoKardia deal. Pro forma debt/EBITDA is moderately high at about 3x including tax liabilities on offshore earnings, but Moody's anticipates steady deleveraging from both earnings growth and the repayment of maturing debt. This will result in debt/EBITDA declining towards 2.5x in 2021.

Social and governance considerations are material to Bristol's rating. Like other pharmaceutical companies, Bristol faces rising exposure to regulatory and legislative efforts aimed at reducing drug prices. These are fueled in part by demographic and societal trends that are pressuring government budgets because of rising healthcare spending. Bristol's higher-than-average revenue concentration in the US market, as well as the high use of certain products by Medicare beneficiaries results in above-average exposure to this risk. Opdivo is a drug covered by Medicare Part B, while Revlimid and Eliquis are covered by Medicare Part D, and all three have high use among the Medicare population. The draft of a bipartisan US Senate bill targets price increases in both types of products, requiring new rebates if the list prices rise faster than inflation. Among governance considerations, disciplined financial policies and a deleveraging commitment are a positive, notwithstanding the increase in financial leverage from recent transactions.

The outlook is negative, reflecting the risks of pipeline execution as well as financial leverage somewhat outside Moody's expectations for the rating. This leaves Bristol weakly positioned in the current rating category to absorb any unexpected operating setbacks or to continue performing debt-funded acquisitions.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

Factors that could lead to an upgrade include improved revenue diversity, successful pipeline execution on both new compounds and existing products like Opdivo, and good commercial uptake of new drug launches. Quantitatively, debt/EBITDA sustained below 1.5x could lead to an upgrade.

Conversely, factors that could lead to a downgrade include weak pipeline execution or slow commercial uptake of new products, unexpected generic competition for key products, or additional debt-funded acquisitions. Quantitatively, debt/EBITDA sustained above 2.5x could lead to a downgrade.

Headquartered in New York, New York, Bristol-Myers Squibb Company ("Bristol") is a leading global pharmaceutical company with strong positions in oncology, cardiovascular disease, and immunology. Annual revenues total approximately $40 billion.

The principal methodology used in these ratings was Pharmaceutical Industry published in June 2017 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1062755. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Michael Levesque, CFA
Senior Vice President
Corporate Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Jessica Gladstone, CFA
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

No Related Data.
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