* AstraZeneca plans to buy back $4.5 bln of shares
* Buybacks exceed post-div free cashflow -Moody's
* Company has very steep patent cliff
LONDON, March 14 AstraZeneca Plc's
plans to buy back $4.5 billion of shares this year could weaken
its financial position and pressure the drugmaker's credit
rating, Moody's Investors Service said on Wednesday.
Other European drugmakers with buyback plans could also come
under pressure, but the risk is more obvious at Britain's
second-biggest pharmaceuticals company, given the size of its
intended buybacks and the scale of the challenges facing the
Marie Fischer-Sabatie, a senior credit officer at Moody's,
said AstraZeneca's planned buybacks exceeded the $2.5 billion
that the company was expected to generate in post-dividend free
cash flow in 2012.
What's more AstraZeneca, which Moody's currently rates A1
stable, has one of the steepest patent cliffs in the industry,
with antipsychotic Seroquel set to lose patent protection this
month and other top-sellers facing expiries through to 2016.
"Negative pressure on AstraZeneca's rating or outlook could
build if sizeable buybacks combined with earnings erosion lead
its financial profile to weaken," Fischer-Sabatie said.
AstraZeneca in recent years has built up a reputation for
offering exceptional returns to investors, both through share
buybacks and a generous dividend, which currently yields 6
It faces increasingly tough times, however, as sales and
profits are projected to slide. The company has few new products
in its pipeline and it is expected to look seriously at
acquisitions to rebuild its portfolio.
Earnings visibility is greater at AstraZeneca's bigger
British rival GlaxoSmithKline, also rated A1 stable,
since its patent losses are largely behind it.
However, while Moody's expects GSK's free cash flow to cover
planned share repurchases of 1 billion to 2 billion pounds
($1.6-3.2 billion) in 2012, the ratings agency added it still
faced potentially large litigation payments that could consume
GSK said in November it could face a $3 billion payment in
2012 related to a settlement with the U.S. government on various
investigations. This amount is covered by existing provisions.
"Share buybacks combined with other large cash outflows
could potentially lead GSK's financial profile to weaken,
resulting in rating pressure," Fischer-Sabatie said. "However,
GSK has provided a monetary range for its repurchases, enabling
it to retain a degree of flexibility if conditions change."
Other European pharma companies, including Sanofi
and Novartis, are expected to make more limited share
repurchases this year.