Recession-proof? Beauty of Big Pharma in Eye of Beholder
Big pharmaceutical companies on both sides of the Atlantic are supposed to be recession-proof, but it may be different in this global recession, depending on who you ask.
Fitch Ratings notes that global pharmaceutical sales grew by an average 6.5 percent in the third quarter, excluding merger-related revenues at Schering-Plough Corp. (NYSE:SGP).
But in a special report on the global pharmaceutical pipeline, the ratings agency noted that pressures were building on European and U.S. companies at the end of the third quarter, both from the rising value of the U.S. dollar and the deepening recession.
As the recession contagion spreads to other regions, especially those areas reliant on cash-paying customers, challenges may be posed to drug manufacturers’ efforts to sustain attractive international revenue growth…demand for medications for chronic conditions warrants a closer look for signs of slowing in the coming reporting periods.
Pipeline issues are also looming. While European and U.S. regulators granted 11 marketing approvals for drugs in the third quarter, Fitch said they missed some regulatory review deadlines, resulting in a growing logjam.
The issue has some urgency. Big pharma needs to get new drugs to market to replace the 2008-09 expirations of exclusive patents on, in some cases, blockbuster drugs.
Standard & Poor’s Credit Research has some concerns about European big pharma, but they’re quite different from those of Fitch.
S & P believes credit quality will remain stable in 2009. But in a report card on large European pharmaceutical companies, the ratings agency said it’s worried about big pharma becoming too acquisitive as falling market valuations make potential takeover targets all the more attractive.
Since July 2007, S & P has lowered its ratings on AstraZeneca plc (NYSE:AZN), GlaxoSmithKline plc(NYSE:GSK), Novartis AG (NYSE:NVS) and Roche Holding Ltd. (RHHBY), noting that the European firms “abandoned their formerly more conservative financial policies.”
Given the potential for a fired-up [mergers and acquisitions] environment as a result of the financial crisis, further negative rating actions cannot be excluded.
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