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Related Issuers
Rating Action:

Moody's downgrades Octapharma's rating to Baa3, rating under review for possible downgrade

29 Sep 2010

Frankfurt am Main, September 29, 2010 -- Moody's Investors Service has today downgraded the issuer rating of Octapharma Nordic AB ("Octapharma" or "the company") to Baa3 from Baa2. Concurrently, Moody's also placed the Baa3 rating on review for possible downgrade.

RATINGS RATIONALE

The rating action follows the withdrawal and recall of Octapharma's key products octagam (50mg/ml) and octagam 10% (100mg/ml) that was requested by healthcare authorities in the US and European market. The recall of the products was triggered by a recent increase in the reporting frequency of side effects, more precisely, thromboembolic events, which however only related to octgam (50mg/ml). Moody's understands that no thromboembolic events relating to octagam 10% were reported and that the company is in discussions with EU healthcare authorities (the product is not sold in the US market) to understand the underlying rationale of the suspension of the marketing authorization for octagam 10%. Moody's also notes that some markets continue to be open for these products.

With a revenue contribution of c. 50%, the withdrawal and recall of these products in certain major markets is expected to negatively impact the company's performance, at least in the short-term, with cash flows being not only affected by lower profits but also negative swings in working capital. At the same time, the company's share in the global market for intravenous immunoglobulin (IVIG) products might be impaired by the unavailability of Octapharma's products. In turn this could lead to some margin pressure in some markets should an aggressive pricing strategy being implemented to regain market share subsequently.

While Moody's understands that the company assumes that the issue will be resolved by the end of 2010, Moody's cautious that uncertainty remains with regard to the final determination of the root cause as well as the timing of the testing and approval processes that are required to bring the products back to the market. In this context, Moody's notes that products manufactured in two of the four production plants operated by Octapharma have been distributed without leading to an increased reporting rate of side effects, which should allow the company to supply their products again as soon as the necessary approvals from regulatory authorities have been obtained.

While the ultimate impact on the company's performance and market share remains to be seen, the occurrence of these safety issues and the corresponding products withdrawals and recalls put, in Moody's view, already pressure on the rating of Octapharma, as reflected in the one notch downgrade to Baa3. In this context, Moody's notes that Octapharma is exposed to an operating environment in which product safety is an important element and which is consequently subject to strict review and approval procedures by health care authorities.

The review process initiated by Moody's will focus on i) the company's ability to timely conclude the product safety review process, ii) the expected timing of the following process milestones until product re-launch and iii) an assessment of the expected performance impact in terms of profit deterioration and cash burn relating to the built up of working capital as well as lost revenues given the relatively high share of fixed costs in this type of business.

Moody's notes that the company continues to benefit from a strong balance sheet with no debt outstanding and material cash holdings accumulated, and the rating agency also observes that Octapharma currently has not put in place committed external sources of liquidity, e.g. credit facilities, though the historical solid financial profile of the company should make this possible in the future. Moody's comments that these facilities could be needed to complement cash holdings and beef up liquidity to face potential negative working capital movements and profit shortfall.

Other considerations reflected in the company's Baa3 rating include i) the very strong credit metrics with no debt outstanding as well as the ii) the private status of the company that offers some benefits as management's approach is perceived to be rather risk averse. The Baa3 also takes into consideration iii) the limited diversification with the production of plasma derived products being the only activity of the company and the relatively high exposure to IVIG products, iv) the risk of a market imbalance in the plasma industry, which could have an impact on pricing and v) risks linked to the sourcing of plasma.

Downgrades:

..Issuer: Octapharma Nordic AB

....Issuer Rating, Downgraded to Baa3 from Baa2

Outlook Actions:

..Issuer: Octapharma Nordic AB

....Outlook, Changed To Rating Under Review From Stable

The most recent rating action on Octapharma was implemented on 30 November 2007 when the Baa2 issuer rating was assigned with a stable outlook.

The principal methodology used in rating Octapharma was Moody's Rating Methodology for the Global Medical Products and Device Industry, which was published in October 2009. Based on 2009 results, the methodology grid applicable for companies in this industry indicated a rating of A3. Moody's notes that some rating factors mentioned in this press release are not fully captured by the rating grid, explaining the differential between the assigned Baa3 rating and the A3 rating indicated by the rating grid. Other methodologies and factors that may have been considered in the process of rating this issuer can also be found on Moody's.com.

Established in 1983, Octapharma, based in Stockholm, Sweden, is privately owned by the Marguerre family. With sales of c. €1 billion in 2009, Octapharma is the fourth-largest commercial provider of plasma derivatives worldwide. Its business model consists of the collection, extraction, purification and subsequent marketing of proteins.

REGULATORY DISCLOSURES

The rating has been disclosed to the rated entity or its designated agents and issued with no amendment resulting from that disclosure.

Moody's Investors Service may have provided Ancillary or Other Permissible Service(s) to the rated entity or its related third parties within the three years preceding the Credit Rating Action. Please see the ratings disclosure page www.moodys.com/disclosures on our website for further information.

Information sources used to prepare the credit rating are the following: parties involved in the ratings, public information and confidential and proprietary Moody's Investors Service's information.

Moody's Investors Service considers the quality of information available on the issuer or obligation satisfactory for the purposes of assigning 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.

Please see ratings tab on the issuer/entity page on Moodys.com 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 Investors Service's Credit Ratings were fully digitized and accurate data may not be available. Consequently, Moody's Investors Service 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 our website www.moodys.com for further information.

Please see the Credit Policy page on Moodys.com for the methodologies used in determining ratings, further information on the meaning of each rating category and the definition of default and recovery.

Frankfurt am Main
Sabine Renner
Analyst
Corporate Finance Group
Moody's Deutschland GmbH
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Paris
Eric de Bodard
MD - Corporate Finance
Corporate Finance Group
Moody's France SAS
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Moody's Deutschland GmbH
An der Welle 5
Frankfurt am Main 60322
Germany

Moody's downgrades Octapharma's rating to Baa3, rating under review for possible downgrade
No Related Data.
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