Agencies Downgrade AstraZeneca’s Credit Rating
Standard & Poor’s and Moody’s have both lowered their credit ratings for Anglo-Swedish drugs company AstraZeneca. Citing a negative outlook from the loss of patent protection on certain blockbuster drugs, Standard & Poor’s downgraded its rating to A-1, from A-1+. Moody’s lowered its A2 debt rating from “stable” to “negative”.
AstraZeneca lost US patent protection on its Nexium heartburn medicine this year, and two other drugs – Crestor for high cholesterol and Seroquel for psychosis – will face competition from cheaper generic versions in the next two years. Together, the three products accounted for nearly 40% of revenues last year.
Standard & Poor’s said lost sales to generic competition and significant costs into new drug research and marketing had hit profits which it did not expect to recover over the next 24 months.
AstraZeneca has focused on improving its portfolio to counteract the patent cliff but Moody’s said the company’s cash flow was suffering as a result of investments in new medicines.
The downgrade comes just as AstraZeneca was preparing to seek funds for its $2.7bn purchase of US-based ZS Pharma, which was announced last week. The Anglo-Swedish drugmaker is planning to finance the deal by issuing bonds across a wide range of maturities.
Moody’s acknowledged that the acquisition made “strategic sense” as it would give AstraZeneca access to a novel compound for treating blood condition hyperkalaemia. Standard & Poor’s, however, said the deal would add pressure on AstraZeneca’s balance sheet at a time when it is racing to develop new products to revive growth. Regardless, the agency said it believes AstraZeneca has a satisfactory capability to replace sales lost from patent-expired products over the next three years and that its ratings outlook is stable.