TEXT-Fitch affirms Sanofi at 'AA-'; outlook stable
In 2011, Sanofi was the third largest pharmaceuticals company worldwide in terms of pharmaceutical sales (behind Pfizer, and Merck ) according to Fitch calculations and the number one market player in Europe. Sanofi also holds a world-leading market position in the animal health market in 2011 and owns the largest player in the strong growing anti-diabetic market. Due to its size, the company benefits from economies of scale in terms of R&D and sales force and from some market power with regards to market participants. With 31% of 9M12 group sales generated in emerging markets (US: 32%, Western Europe: 24%, ROW: 13%), the company is the largest player in this important growth region.
With its broad product portfolio - having a presence in ethical pharmaceuticals, vaccines, over-the-counter (OTC) medicines, generic drugs and animal health products - Sanofi benefits from a solid product diversification. At end-September 2012 the reliance on top pharmaceutical product Lantus (anti-diabetic drug) was 14% of group sales, and its reliance on the top-five products was 32% of group sales. This diversification helps the company to cope with negative developments regarding single products and segments.
Sanofi's pharmaceuticals R&D product pipeline is promising and is expected to support the group's future cash flow generation. At end-9M12 Sanofi's R&D product pipeline comprised 15 new molecular entities (NMEs) and vaccines in its in Phase III trials or in registration. These include the potential blockbuster drugs lixisenatide (Lyxumia) for diabetes and mipomensen (Kynamro), a cholesterol-reducing drug candidate.
Fitch expects a slight deterioration in credit protection measures for 2012 and 2013 and a slight improvement thereafter. Overall, over the next few years, the credit protection measures are expected to remain in line with what Fitch expects for a 'AA-' rated pharmaceuticals company with Sanofi's business profile. Sanofi's funds from operations (FFO) adjusted net leverage is strong and stood at 1.2x at end-2011. It is well in the range expected for a 'AA-' rating of 1.7x-2.2x in 2012. Its FFO fixed charge cover stood at 19.2x, which is also above the expected 9x-11x range expected for its 'AA-'rating. This leaves Sanofi with some headroom for debt-financed acquisitions.
RATING SENSITIVITY GUIDANCE:
Positive: Future developments that could lead to positive rating actions include:
- A reduced reliance on single products
- A sustained industry leading profitability and cash flow generation combined with a commitment to financial ratios in line with a higher rating category with FFO adjusted net leverage about 1.25x on a continuing basis and FFO net fixed charge cover of about 16x on a continuing basis.
Negative: Future developments that could lead to negative rating action include:
- Major debt-financed acquisitions or share buybacks, which result in FFO adjusted net leverage greater than 2.2x on a continuing basis
- FFO net fixed charge cover of below 9x on a continuing basis