Ratings agency Fitch has issued a report saying the pharmaceutical sector will “continue to experience significant operating challenges” in 2012 but while issuing a negative outlook, it will still be one of the highest-rated industries.
The new analysis says that the 15 global pharmaceutical companies covered by Fitch will suffer during 2012 as they contend with “an unprecedented period of patent expiration”, plus increasing government cost-containment and demand pressures, “stemming from relatively high unemployment and low consumer confidence”. The industry will feel the effect of the loss of market protection for four of the 10 leading medicines in 2012, with a value of more than $50 billion, affecting Eli Lilly, Bristol-Myers Squibb and Pfizer the most, through patent losses on Zyprexa (olanzapine), Plavix (clopidogrel) and Lipitor (atorvastatin), respectively.
Fitch goes on to say that 2011 was “extraordinarily productive in terms of late-stage R&D, with the majority of the new treatments anticipated to reach blockbuster status”, although this will not be enough to offset the sales declines faced by the industry. Five of the 13 large, rated pharmaceuticals companies will report sales declines in 2012, and four of them (Pfizer, B-MS, Lilly and AstraZeneca) could see high-single-digit to double-digit declines.
Small to medium M&A and more share buybacks
To compensate for upcoming sales and profit losses, Fitch expects big pharma to pursue small- to medium-sized mergers and acquisitions in 2012. and indulge in more in-licensing and collaborations, although it notes that Abbott and Pfizer are divesting or spinning-off major parts of their businesses. In the absence of large acquisitions, share buybacks should continue in 2012. and apart from Bayer, Roche, Lilly and Sanofi, all Fitch-rated big pharma companies have activated repurchasing programmes.
As governments are looking more to reduce drug costs and are “not willing to reimburse drugs with uncertain clinical evidence at the launch”, pharmaceuticals companies are likely to continue responding by offering conditional pricing deals, the report suggests, while emerging markets, particularly China, will continue to drive sales.
Nevertheless, “despite the continued operating headwinds in 2012, global pharmaceuticals is expected to remain one of Fitch’s highest-rated industries”, the analysis notes. This is due to its superior cash flow generation, large cash balances, strong liquidity and solid growth prospects; these are driven by “high unmet medical need, favourable demographics, technological advances and the persistence of chronic diseases”.
Of the 15 companies rated by Fitch in the USA and Europe, three have a negative outlook (Sanofi, Abbott and B-MS) and only one is rated positive – Roche. Over the past four years, the median industry rating has deteriorated to ‘A+’ from ‘AA_’.
