August 15, 2014 / 8:10 AM / 3 years ago

Fitch: Europe Pharmaceutical M&A Reduces Financial Headroom

(The following statement was released by the rating agency) Link to Fitch Ratings' Report: Tracking the Implications of M&A on European Pharma here LONDON, August 15 (Fitch) Fitch Ratings says in a new report that increased M&A activity in the European pharmaceutical sector has resulted in stronger business models but for certain issuers also declining financial headroom. Pharmaceutical M&A in Europe has focused on selective portfolio optimisation and asset swaps (as in the Novartis AG/GlaxoSmithKline PLC deal), with an aim to mitigating R&D risks and achieving scale advantages in selective areas such as consumer healthcare (as in the Bayer AG/Merck &Co., Inc. deal). R&D productivity is an increasingly important factor for M&A in the pharmaceuticals industry as bringing a new drug to market is becoming more complex and more expensive. Further reimbursement rules for companies have become tougher with a growing focus on value-based assessment from healthcare bodies such as National Institute for Health and Care Excellence (NICE) in the UK. Within the consumer healthcare sector scale is a pre-requisite for success given the intensely competitive environment. The larger European M&A pharmaceuticals transactions have been structured in a capital-light manner, including asset swaps and the use of hybrid capital, to protect the financial profiles of the acquiring parties. As a result out of the six rated European pharmaceuticals companies involved in M&A activity, Fitch has only revised Bayer AG's Outlook to Negative from Stable; the rest were unaffected. Nevertheless, M&A has significantly reduced financial flexibility for some issuers and may prompt other issuers absent from M&A, such as Sanofi SA, to review their business models to achieve scale in order to compete more effectively. The report focuses on the key trends of the M&A uptick seen so far this year in the sector, the impact on Fitch rated European pharmaceuticals issuers and the effect on the business profile and financial headroom for each issuer. The report, Tracking the implications of M&A on European Pharma, is available on www.fitchratings.com or by clicking on the link above. Contacts: Roma Patel Analyst +44 203 5301465 Fitch Ratings Limited 30 North Colonnade London E14 5GN Frank Orthbandt Director +44 203 530 1037 Media Relations: Peter Fitzpatrick, London, Tel: +44 20 3530 1103, Email: peter.fitzpatrick@fitchratings.com. Additional information is available on www.fitchratings.com ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

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