JPY120 billion of rated debt affected
Tokyo, January 28, 2011 -- Moody's Japan K.K. has downgraded the issuer rating and
senior unsecured ratings of Eisai Co., Ltd (Eisai) to A3
from A2. The outlook is stable.
The action concludes the review for possible downgrade initiated on October
22, 2010.
RATING RATIONALE
This rating action is based on Moody's view that Eisai's revenue will
significantly decline and its overall credit metrics could remain weak
for the A2 rating over the next few years, due to patent expirations
and severe competition for its major products in the US market.
The action also reflects Moody's concern that it will be difficult
for the company to fully offset the decline in revenue with its current
in-patent products and the expected debut of new products.
The patent for its largest product Aricept -- for the treatment of
Alzheimer's disease -- expired in November 2010 in the US,
and Moody's expects a big decline in its sales in the US in the
next few years. In the first half of FYE3/2011, sales of
Aricept in the US accounted 25.7% of Eisai's total
revenue.
Aricept 23 mg -- a new dosage of Aricept -- was approved by
the Food and Drug Administration (FDA) in July 2010, and which has
advantages over the existing Aricept 10mg and 5mg tablets -- should
offer some promise. This new product could help treat moderate-to-severe
Alzheimer's disease symptoms. But, the pace of market penetration
by the new dosage seems slower than expected, and the speed of decline
in the sales of existing Aricept 10mg and 5mg tablets will be much faster
than the growth in sales of Aricept 23 mg. Moody's believes
that sales of Aricept in the US could decline by more than 50%
over the next year or two.
In addition, sales in the US of AcipHex -- a proton pump inhibitor
which accounted 8.2% to total revenue for the first half
of FYE3/2011 -- are stagnant due to extensive competition in the
proton pump inhibitor therapeutic area, and even though the patent
of AcipHex is still valid. To respond to such difficult market
fundamentals, the company has developed an additional formulation
of AcipHex -- named AcipHex ER -- and is now awaiting FDA approval.
Moody's will focus on the progress of AcipHex ER and how it can
offset the weak sales trend of AcipHex until the latter's patent
expiration in May 2013.
On the other hand, Moody's expects that Eisai's earnings
and cash flow will not decline in direct correlation to the expected sales
drop for Aricept, and will instead be partially mitigated by these
conditions:
1) Payments of co-promotion fees of Aricept to Pfizer will decrease
in parallel with the sales decline.
2) The company maintains a leading market position in Japan as well as
a strong position in the Alzheimer's disease therapeutic section in markets
other than the US.
3) It has growing products, such as Humira, fully Human anti-TNF
monoclonal antibody, Lyrica for peripheral neuropathic pain treatment,
and MGI products, and maintains a promising pipeline, including
Halaven of a new anticancer agent, which was approved by the FDA
in November 2010 and is awaiting approvals in other regions.
These factors underpin the A3 rating and protected Eisai from a multi-notch
downgrade, during the review.
The A3 rating also incorporates Eisai's prudent financial policy,
which stipulates the use of free cash flow to balance shareholder returns,
investment for growth, and debt payments. The company will
maintain a healthy financial cushion over the medium term.
The stable rating outlook reflects the consideration that Eisai's
strong efforts to mitigate the negative impact of the patent expirations
of its major products will help stabilize earnings and its healthy financial
cushion, supported by its prudent financial policy.
Significant new developments in its pipeline or product portfolio as well
as significant improvement in its leverage could put upward pressure on
the rating. The rating will also come upward pressure if revenue
rebounds and regains momentum as a result of the timely launch of new
products and the steady expansion of sales.
Moody's may also consider a positive rating action if adjusted debt/EBITDA
declines below 2.0x and adjusted EBITA margin improves over 20%
over the medium term, as the company maintains revenue growth.
Significant delay for the approval for its promising new products or further
pressure on its earnings and cash flow due to the drastic unfavorable
changes in its market fundamentals could put downward pressure on its
rating. The rating may also come under pressure if revenue continues
to decline after FYE3/2013 because of a stagnant product portfolio.
Moody's may also consider a negative rating action if adjusted debt/EBITDA
rises above 3.0x and adjusted EBITA margin deteriorates below 15%
over the medium term. Massive cash-based acquisitions,
resulting in a significant deterioration of liquidity and its balance
sheet, would increase downward pressure on its rating as well.
Moody's last rating action with respect to Eisai was taken on October
22, 2010 when the A2 rating was placed under review for possible
downgrade.
The principal methodology used in this rating was Moody's "Global Pharmaceutical
Industry," published on September 30, 2010, and available
on www.moodys.co.jp.
Eisai Co., Ltd, headquartered in Tokyo, is a
leading pharmaceuticals company in Japan.
REGULATORY DISCLOSURES
Information sources used to prepare the credit rating are the following:
parties involved in the ratings, parties not involved in the ratings,
public information, and confidential and proprietary Moody's
information.
Measures taken to ensure the quality of this information include use of
public information, reviews by a third party and verification by
the lead analyst.
Moody's considers the quality of information available on the issuer
or obligation satisfactory for the purposes of maintaining a credit rating.
Moody's adopts all necessary measures so that the information it uses
in assigning a credit rating is of sufficient quality and from sources
Moody's considers to be reliable including, when appropriate,
independent third-party sources. However, Moody's
is not an auditor and cannot in every instance independently verify or
validate information received in the rating process.
Credit ratings are Moody's current opinions of the relative future credit
risk of entities, credit commitments, or debt or debt-like
securities. Moody's defines credit risk as the risk that an entity
may not meet its contractual, financial obligations as they come
due and any estimated financial loss in the event of default. Credit
ratings do not address any other risk, including but not limited
to: liquidity risk, market value risk, or price volatility.
Credit ratings do not constitute investment or financial advice,
and credit ratings are not recommendations to purchase, sell,
or hold particular securities. No warranty, express or implied,
as to the accuracy, timeliness, completeness, merchantability
or fitness for any particular purpose of any such rating or other opinion
or information is given or made by Moody's in any form or manner whatsoever.
The credit risk of an issuer or its obligations is assessed based on information
received from the issuer or from public sources. Moody's may change
the rating when it deems necessary. Moody's may also withdraw the
rating due to insufficient information, or for other reasons.
Moody's Japan K.K. is a credit rating agency registered
with the Japan Financial Services Agency and its registration number is
FSA Commissioner (Ratings) No. 2. The Financial Services
Agency has not imposed any supervisory measures on Moody's Japan K.K.
in the past year.
Please see ratings tab on the issuer/entity page on the Moody's website
for the last rating action and the rating history.
The date on which some Credit Ratings were first released goes back to
a time before Moody's Credit Ratings were fully digitized and accurate
data may not be available. Consequently, Moody's provides
a date that it believes is the most reliable and accurate based on the
information that is available to it. Please see the ratings disclosure
page on the Moody's website for further information.
Please see the Credit Policy page on the Moody's website for the methodologies
used in determining ratings, further information on the meaning
of each rating category and the definition of default and recovery.
Tokyo
Noriko Kosaka
Vice President - Senior Analyst
Corporate Finance Group
Moody's Japan K.K.
JOURNALISTS: (03) 5408-4110
SUBSCRIBERS: (03) 5408-4100
Tokyo
Shinsuke Tanimoto
Senior Vice President - Team Leader
Corporate Finance Group
Moody's Japan K.K.
JOURNALISTS: (03) 5408-4110
SUBSCRIBERS: (03) 5408-4100
Moody's Japan K.K.
Atago Green Hills Mori Tower 20fl
2-5-1 Atago, Minato-ku
Tokyo 105-6220
Japan
JOURNALISTS: (03) 5408-4110
SUBSCRIBERS: (03) 5408-4100
Moody's downgrades Eisai's ratings to A3; outlook stable
