Dec 13 - The ability of global pharmaceutical companies to
cope with record levels of patent expiry is the key driver for Fitch Ratings'
revision of the sector outlook to stable from negative. But even though US
patent expiry is diminishing to about USD25bn of worldwide sales in 2013 from
USD52bn this year, the patent cliff will still weigh on branded drug
manufacturers' operating profiles.
Revenue lost through patent expiry should be broadly offset by sales of new
products, despite a challenging operating environment. Cuts in government
healthcare expenditure, the tendency to substitute branded drugs with generic
ones and tough economic conditions in Europe and the US put pressure on
profitability and cash flow. The EBITDA margins of many of the rated entities
are therefore likely to suffer in 2013.
We expect pharmaceutical companies to strengthen their presence in emerging
markets, where the expanding population and economy increases demand,
particularly for affordable generic and over-the-counter medicines.
We also forecast big pharma companies to continue to grow through smaller or
medium-sized acquisitions. Many have the capital resources to expand but have
started share buyback programmes as the weak operating environment limits growth
opportunities. The tendency to return capital to shareholders could have
negative implications for their strong credit profiles and high ratings.
As they cope with the operating challenges, we expect pharmaceutical companies
to maintain their superior cash flow generation, large cash balances and strong
liquidity, and remain one of our highest-rated industries.
For more information on the outlook for the sector, please see the full Global
Pharmaceuticals Outlook Report, published today on www.fitchratings.com.