New York, October 04, 2022 -- Moody's Investors Service ("Moody's") has completed a periodic review of the ratings -and other ratings that are associated with the same analytical units for the rated entity(entities) listed below.
The review was conducted through a portfolio review discussion held on 27 September 2022 in which Moody's reassessed the appropriateness of the ratings in the context of the relevant principal methodology(ies), recent developments, and a comparison of the financial and operating profile to similarly rated peers. A possible outcome from periodic reviews is a referral of a rating to a rating committee.
This publication does not announce a credit rating action and is not an indication of whether or not a credit rating action is likely in the near future. Credit ratings and outlook/review status cannot be changed in a portfolio review and hence are not impacted by this announcement.
Key Rating Considerations
The principal methodology used for the rated entities listed below was Pharmaceuticals published in November 2021. Please see the Rating Methodologies page on https://ratings.moodys.com for a copy of this methodology.
Key rating considerations on a forward-looking basis may include but are not limited to the following summarized below.
Pharmaceuticals
Scale: Scale is considered because it is an indicator of a company's ability to influence business trends and pricing and to support a stable or growing market position. Scale also can be an indicator for greater resilience to changes in demand and for geographic diversity. In addition, scale gives pharmaceutical companies leverage with the suppliers of active pharmaceutical ingredients, as well as customers, including drug wholesalers, pharmacy benefit managers and other healthcare payors. Large scale also provides companies with greater discretionary budgets for research and development (R&D) and capital expenditures, which are essential to maintaining the drug development pipeline. For generic drug companies, scale is especially critical due to ongoing pricing pressure on generic drugs and the obvious advantage of spreading fixed costs over a larger revenue base. Larger scale for generic companies is typically associated with strong relationships with drug store chains and good legal capabilities required to successfully challenge branded drug patents. Scale is measured using Total Reported Revenue.
Business Profile: The business profile factor provides an important indication of a pharmaceutical company's strength based on several measures of diversification, its exposure to patent expirations and other forms of competition, and its ability to replenish declining revenue with opportunities from its drug pipeline. Scoring for this factor is based Product and Therapeutic Diversity, Geographic Diversity, Patent Exposures, and Pipeline Quality.
Leverage and Coverage: Leverage and coverage measures are indicators for a company's financial flexibility and long-term viability, including its ability to adapt to changes in the economic and business environments in the segments in which it operates. Among others, ratios such as Debt/ EBITDA and Cash Flow from Operations/ Debt and Pharmaceutical Cash Coverage of Debt are indicators of leverage and coverage.
Financial Policy: Management and board tolerance for financial risk is an important rating determinant because it directly affects debt levels, credit quality, and the risk of adverse changes in financing and capital structure. Our assessment of financial policies includes the perceived tolerance of a company's governing board and management for financial risk and the future direction for the company's capital structure. Considerations include a company's public commitments in this area, its track record for adhering to commitments and our views on the ability of the company to achieve its targets. Financial risk tolerance serves as a guidepost to investment and capital allocation. Liquidity management is an important aspect of overall risk management and can provide insight into risk tolerance.
Other Factors: Other factors may include,but are not limited to: financial controls and the quality of financial reporting, corporate legal structure; the quality and experience of management; assessments of corporate governance as well as environmental and social considerations; exposure to uncertain licensing regimes and possible government interference in some countries. Regulatory, litigation, liquidity, technology, and reputational risk as well as changes to consumer and business spending patterns, competitor strategies and macroeconomic trends are also considered.
• AbbVie Inc.
• Akorn Operating Company LLC
• Alkermes, Inc.
• Alvogen Pharma US, Inc.
• Amgen Inc.
• Amneal Pharmaceuticals, LLC
• ANI Pharmaceuticals, Inc.
• Azurity Pharmaceuticals, Inc.
• Bausch Health Companies Inc.
• Biogen Inc.
• Bristol-Myers Squibb Company
• Eli Lilly and Company
• Emergent BioSolutions Inc.
• Gilead Sciences, Inc.
• Horizon Therapeutics USA, Inc.
• Jazz Pharmaceuticals plc
• Johnson & Johnson
• Lannett Company, Inc.
• Mallinckrodt International Finance S.A.
• Merck & Co., Inc.
• Organon & Co.
• Padagis LLC
• Pfizer Inc.
• RBP Global Holdings Ltd
• Regeneron Pharmaceuticals, Inc.
• Royalty Pharma plc
• Teva Pharmaceutical Industries Ltd
• Viatris Inc.
The principal methodology used for the rated entities listed below was Manufacturing published in September 2021. Please see the Rating Methodologies page on https://ratings.moodys.com for a copy of this methodology.
Key rating considerations on a forward-looking basis may include but are not limited to the following summarized below.
Manufacturing
Scale: Scale is a consideration because it is an indicator of the overall depth of a company's business and its success in attracting a variety of customers, as well as its resilience to shocks, such as sudden shifts in demand or rapid cost increases. Larger manufacturing companies typically attract a greater breadth of customers and can better withstand cyclicality resulting from economic conditions and product cycles. A larger revenue base also generally leads to important economies of scale in raw material purchases and corporate functions, particularly important given the need for global supply chain management to control costs for most manufacturing companies. Larger manufacturers also tend to generate higher cash flow for capital reinvestment and debt reduction. In addition, they generally have greater access to the capital markets, which can reduce the cost of capital. Revenue is an indicator of scale.
Business Profile: The business profile of a manufacturing company is important because it greatly influences its ability to generate sustainable earnings and operating cash flows. Core aspects of a manufacturing company's business profile are its market position, the breadth and stability of the end-markets it serves, the diversity of its product offerings, as well as the effectiveness of the company's cost structure.
Profitability and Efficiency: Profits are considered because they are needed to generate sustainable cash flow and maintain a competitive position, which includes an ability to invest in marketing, research, factories, and personnel. High profitability sustained over time is generally an indicator of operating efficiency and competitive advantage. EBITA Margin is an indicator of profitability and efficiency.
Leverage and Coverage: Leverage and cash flow coverage measures provide indications of a company's financial flexibility and ability to sustain its competitive position, as well as how much financial risk a manufacturer is willing to undertake. A manufacturer with strong financial flexibility is better able to invest in product innovation and adapt to changing customer preferences and competitive challenges than a manufacturer with a constrained capital structure. The capital intensity of the manufacturing sector also makes financial flexibility critical to absorbing unexpected costs and withstanding industry cyclicality. Indicators of leverage and coverage include ratios such as: Debt/ EBITDA, EBITA/ Interest Expense, Free Cash Flow/ Debt, and Retained Cash Flow/ Net Debt.
Financial Policy: Financial policy encompasses management and board tolerance for financial risk and commitment to a strong credit profile. It is an important rating determinant because it directly affects debt levels, credit quality, the future direction for the company and the risk of adverse changes in financing and capital structure. Financial risk tolerance serves as a guidepost to investment and capital allocation. Liquidity management is an important aspect of overall risk management and can provide insight into risk tolerance.
Other Rating Considerations: Other considerations may include but are not limited to: financial controls and the quality of financial reporting; corporate legal structure; the quality and experience of management; assessments of corporate governance, as well as environmental and social considerations; exposure to uncertain licensing regimes; and possible government interference in some countries. Regulatory, litigation, liquidity, technology, and reputational risk, as well as changes to consumer and business spending patterns, competitor strategies and macroeconomic trends, are also considered.
• Elanco Animal Health Incorporated
• Zoetis Inc.
This announcement applies only to Rated Entities with EU rated, UK rated, EU endorsed and UK endorsed ratings. Rated Entities, with Non EU rated, non UK rated, non EU endorsed and non UK endorsed ratings may be referenced herein to the extent necessary, if they are part of the same analytical unit.
Please see the Issuer page on https://ratings.moodys.com for each of the ratings covered, most updated credit rating action, rating history, and Credit Rating action Press Release including the rating rationale and factors that could lead to a rating upgrade or downgrade.
This publication does not announce a credit rating action.
For any credit ratings referenced in this publication, please see the issuer/deal page on https://ratings.moodys.com
for the most updated credit rating action information and rating history.
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