Moody's down on pharma prospects

By Phil Taylor

- Last updated on GMT

Related tags: Pharmaceutical companies, Generic drug

Pharmaceutical companies on both sides of the Atlantic are facing a particularly difficult time over the next 12 to 18 months, according to a report by financial research and analysis company Moody’s.

The underlying causes of Moody’s negative appraisal are well documented – a slew of patent expiries on major products between 2010 and 2013, a tougher regulatory climate slowing down new product approvals and global cost-containment exerting downward pricing pressure and restricting market access for new medicines.

Added to that are the continuing risks of unexpected problems related to product safety, as well as patent challenges from generic manufacturers and other litigation issues.

At the moment, Moody’s believes US and Japanese pharmaceutical companies are looking stronger than their European counterparts on the basis of the strength of their balance sheets. The latter have suffered somewhat from the consolidation that has swept through the sector in recent months, it adds.

However, US-based pharmaceutical companies have less revenue diversity and face larger patent expirations over the next several years​,” according to Moody’s.

The firm predicts that global consolidation is likely to continue, pressuring credit ratings for companies that opt to substantially increase financial leverage to pursue acquisitions. It expects “global interest in the acquisition of U.S.-based drug companies, as well as further investment in emerging market economies.​”

Pharmaceutical companies have been amending their business strategies to compensate for the reduction in growth, including reorganizing R&D and increasingly turning to outsourcing to reduce overheads and boost efficiencies.

But in spite of these business development moves, Moody's expects growth rates for branded drug companies to continue to moderate, especially as large patent expirations occur.

The growth outlook for biotechnology companies is stronger because generic threats are less imminent​,” it said, adding that “generic drug companies also face good growth prospects globally, although the segment of the industry faces continuing pricing pressure, and even greater likelihood of global consolidation, potentially debt-financed​.”

Helping to offset these risks, the pharmaceutical industry still benefits from favourable demographic trends, supporting the increasing use of pharmaceutical products. In addition, the pharmaceutical industry should remain relatively less exposed to economic weakness in the US and Europe compared to many other industries. If economic pressures significantly persist or spread, however, healthcare cost containment efforts are likely to intensify.

Related topics: Consolidation, Markets & Regulations

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