Global Credit Research - 02 Feb 2015
New York, February 02, 2015 -- Since mid-2013, the global branded pharmaceutical companies have improved their pipelines of new drugs while their exposure to patent expirations has also edged up slightly, says Moody's Investors Service in the report "Global Pharmaceuticals Snapshot."
In the analysis of changes in the key credit attributes of 16 companies since the last "snapshot" report in May 2013, Moody's finds that four companies -- Eli Lilly (A2 stable), Amgen (Baa1 stable), Merck (A1 stable on guaranteed obligations) and AstraZeneca (A2 stable) -- have strengthened their pipelines, with AstraZeneca showing the largest improvement.
Two companies -- Biogen Idec (Baa1 stable) and Gilead Sciences (A3 positive) -- have weaker pipelines, primarily because both companies have launched high-profile drugs since Moody's 2013 report.
Overall, Moody's considers Bristol-Myers Squibb (A2 negative) and Eli Lilly to have the strongest pipelines currently, relative to their existing revenue bases.
Companies with the weakest pipelines overall are Novo Nordisk (A1 stable) and Johnson & Johnson (Aaa stable). Because Moody's compares pharmaceutical pipeline sales relative to the entire revenue base, including any non-pharmaceutical business, large diversified companies like Johnson & Johnson score somewhat low in the Moody's assessment.
Although pipeline qualities improved industry-wide, the industry's exposure to upcoming patent expirations is also now higher. Five companies -- Novo Nordisk, Amgen, Merck, Pfizer (A1 stable) and Eli Lilly -- have higher exposures than they did in May 2013.
"In most of these cases, the erosion relates to blockbuster biotech products that are now closer to the possibility of biosimilar competition," says Moody's Senior Vice President Michael Levesque.
Biosimilar product applications are on file in the US for several of Amgen's key products, says Moody's, and a biosimilar version of Pfizer's Enbrel has been filed in Europe.
That being said, biosimilar products are still more protected against these risks than traditional drugs, and companies with a strong emphasis on biotech, like Roche (A1 stable) and Biogen Idec, still have the lowest patent exposure risk. Large, diversified companies like Johnson & Johnson also have very low patent exposure risks in Moody's assessment.
Companies with the highest patent exposures relative to their revenue bases include AstraZeneca, Bristol-Myers Squibb, and Eli Lilly.
"Most companies with large exposures to patent expirations have managed to strengthen their pipelines (e.g. Bristol Myers, Lilly, AstraZeneca) to compensate," says Moody's Levesque.
Moody's assessments represent an estimate of the amount of total company revenue that is at risk of decline over the next three years, before considering growth from existing and pipeline products. Moody's also examines patent expirations by product and by geography, reflecting fast erosion in some markets and slow erosion in others.
For more information, Moody's research subscribers can access this report at
https://www.moodys.com/research/Global-Pharmaceuticals-Snapshot-Pipeline-Quality-Improves-But-Patent-Exposures-Edge--PBC_1000298.
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Michael Levesque, CFA
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