Jan 31 - Fitch Ratings has upgraded Switzerland-based
healthcare company Roche Holding Ltd's (Roche) Long-term Issuer Default Rating
(IDR) and senior unsecured rating, including that for the issuances of Roche
Holding Inc., to 'AA' from 'AA-' with a Stable Outlook and affirmed the
Short-term IDR at 'F1+'.
Strong Deleveraging: Roche's funds from operations (FFO) adjusted net leverage
is well in line with the expectations for a 'AA' rating and stood at below 1x in
2012 (2011: 1.16x). A significant reduction in leverage was seen in 2012 as net
debt decreased by CHF5bn. Leverage is now almost in line with Roche's target of
a net debt/assets position between 0% and 15% (FY12: 16%). Given Roche's strong
business profile, major acquisitions are not expected.
Global Oncology Leader: Roche was in 2012 global market leader in the
high-growth, high-margin oncology segment as well as the global market leader in
in-vitro diagnostics. According to Fitch's calculations it was also globally the
fourth largest pharmaceuticals company in terms of pharmaceuticals sales in
Limited Patent Risk: Roche has very limited exposure to patent expiry over the
next few years and a strong pipeline. Less than 3% of 2011 pharmaceutical sales
are exposed to US patent expiry by end-2014. Major US patent expiries include
those for Rituxan in 2018 and for Avastin and Herceptin in 2019, while the
patent expiry for these drugs in major EU areas start in 2013, 2022 and 2014
respectively. As the expiring products are biological drugs they are generally
more protected from generic competition than if they were chemical molecules.
Strong R&D Product Pipeline: Fitch regards Roche's late stage pipeline as
strong. At end-Q312 Roche had 70 new molecular entities in different stages of
clinical development with 10 of them in Phase III. Several of Roche's projects
in late stage R&D pipeline (for example Obinutuzumab, for chronic lymphocytic
leukaemia and non-Hodgkin's lymphoma) but also some of the recently approved
drugs, such as the HER2 Positive metastatic breast cancer drug Perjeta, have
according to market estimates the potential of becoming a blockbuster drug.
Diagnostics Provides Diversification: The group's presence in the less
cash-generative diagnostics business (23% of group sales in 2012 and 12% of core
group operating profit (before overhead costs)) provides it with some
diversification and synergies with the pharmaceuticals business.
Solid 2012 sales Sales Growth: Pharmaceuticals sales grew by 5% yoy in constant
currencies driven by its Oncology business (up 9%), while Roche's diagnostics
sales grew by 4%, driven by Professional Diagnostics (up 8% yoy) and Tissue
Diagnostics (up 12% yoy).
Highly Profitable: In 2012 Roche's core operating profit margin increased stood
at 27.7% (2011: 35.6%) and is industry leading. Its high profitability is driven
by Roche's pharmaceutical segment, with its focus on highly profitable oncology
drugs. The 2012 core operating profit margins in pharmaceuticals and diagnostics
stood at 44% and 21% respectively.
RATING SENSITIVITY GUIDANCE
Positive: Future developments that could lead to positive rating actions
- A sustained industry leading profitability and cash flow generation combined
with a commitment to financial ratios in line with a 'AA+' rating
- Increased product diversification outside oncology
- FFO adjusted net leverage not greater than 0.5x on a continuing basis and FFO
net fixed charge cover of 20x or above on a continuing basis.
Negative: Future developments that could lead to negative rating action include:
- Significant pipeline setbacks
- Major debt-financed acquisitions or share buybacks, which result in FFO
adjusted net leverage greater than 1.6x on a continuing basis
- FFO net fixed charge cover of below 11x on a continuing basis