TEXT-Fitch:Europe woes push big pharma more towards emerging markets

Thu Feb 14, 2013 7:35am EST

Feb 14 - Reports of bid interest in Brazilian drug company Ache Laboratorios Farmaceuticos reinforce our expectation that major European pharmaceutical companies will aim for even greater emerging market diversification to boost growth, Fitch Ratings says.

The shift in focus is a response to structural problems in the European market, which is suffering from mid-single-digit price declines. This led to European sales at constant exchange rates falling for all the five big European pharmaceuticals companies that have reported so far, and GlaxoSmithKline to announce a restructuring plan intended to reduce the size of its business in Europe.

We expect emerging markets to remain a key region for pharma M&A activity because of good growth expectations - although at the cost of lower profit margins. The focus is likely to be on small to medium-sized acquisitions that are unlikely to harm companies' credit profiles. GlaxoSmithKline is one of several companies that could be interested in Ache Laboratorios, according to recent press reports that said the Brazilian company has hired Lazard to investigate a possible sale.

We do not expect larger debt-financed acquisitions that could have an impact on ratings. If larger acquisitions were to be pursued, AstraZeneca would be the most likely to aim for them as it is under the most operational pressure but has considerable resources.

Among European pharma companies, AstraZeneca reported a 19% drop in European sales at constant exchange rates, followed by Sanofi with a 9% fall, GlaxoSmithKline (7%), Novartis (5%) and Roche (2%).

We published two special reports in January that discussed the main challenges for the sector and likely future trends. "Global Pharmaceuticals Sector and Companies Overview" and "Global Pharmaceuticals Peer Study" are both available from www.fitchratings.com.

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