Moody’s: Rx credit rating threatened by patent expirations, debt

Rated pharmaceutical companies Reported cash and debt, $US billions Source: Moody’s Investors Service, April 2010

NEW YORK —A combination of patent expirations and rising levels of debt could put the drug industry’s strong overall credit rating at risk, according to one of the largest credit-rating firms in the country.

Moody’s Investors Service said in a report last month that pharmaceutical industry debt increased by 117% to $270 billion at the end of 2009, compared with $124 billion at the end of 2006. The higher levels of debt could make it difficult for drug companies to buy other companies without hurting their credit scores, according to the report titled “Pharmaceutical Industry Levers Up.”

“The rise in industry debt leaves reduced cushion in credit metrics, making pharmaceutical ratings vulnerable to ongoing downward pressure,” Moody’s SVP Michael Levesque said. Still, drug companies have a better overall credit rating than most industries, Moody’s said, with 20 companies still having “A” ratings.

In addition, some of the bigger companies have used acquisitions for the specific purpose of cushioning themselves against the effects of patent expirations. Pfizer acquired Wyeth, and Merck acquired Schering-Plough, particularly to get their hands on those companies’ large pipelines of high-cost specialty drugs, including biotech drugs for treating autoimmune disorders and cancer.

With imminent expirations of the patents for top-selling drugs like Pfizer’s cholesterol-lowering medication Lipitor (atorvastatin)—which had 2009 sales of $7.5 billion, according to IMS Health—Van Leeuwenhoeck Research managing partner Marcel Wijma thought the age of the blockbuster is coming to an end. But high-cost specialty biotech drugs could make up for some of those lost sales. Some biotech drugs already have made IMS’ list of the top 15 drugs by sales, such as Enbrel (etanercept) by Amgen and Pfizer, and Amgen’s Epogen (epoetin alfa) and Neulasta (pegfilgrastim), all of which had sales of $3 billion or more in 2009. “Some biotech drugs have blockbuster-like sales figures because they cost more, not because they have markets of millions of patients, the way block-buster pharmaceuticals do,” Wijma told Drug Store News.

Pharmaceutical companies with largest increases in debtReported total debt*Reported cash & investments** In U.S. millions; fiscal year** Represents the periods ended March 31, 2007, and Sept. 30, 2009, respectively† Reflects Moody’s credit ratingsSource: Moody’s Investors Service, April 2010
 Change in debt*
Company20062009(+/-) 2006-200920062009
Pfizer (A1)†$7,980$48,662$40,682$31,605$39,091
Roche (A2)†6,75341,03134,27820,61018,253
GlaxoSmithKline (A1)†10,74526,25315,5086,81311,735
Merck (Aa3)†6,83617,45410,61816,50110,037
AstraZeneca (A1)†1,22311,0639,8407,84211,586
Johnson & Johnson (Aaa)†6,59314,5417,9484,10019,425
Novartis AG (Aa2)†7,29913,9886,68910,26818,824
Eisai (A2)†**24,7024,7002,4692,370
Abbott Laboratories (A1)†12,41116,4564,0452,60311,065
Sanofi-Aventis (A1)†9,15712,6643,5072,9458,171

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