May 03 - Fitch Ratings says the big Fitch-rated European pharmaceuticals companies, such as Novartis (rated 'AA'), have headroom within their current ratings to pursue bolt-on or even larger acquisitions.
The announced acquisition by Novartis of the US generic drugs Fougera Pharmaceuticals Inc. for USD1.5bn is thus not likely to cause a rating change, although, once completed, it significantly reduces Novartis' headroom for acquisitions in 2012.
The two Fitch-rated European big pharmaceuticals companies with the highest rating headroom - being able to afford medium-sized debt-financed investments without losing their ratings - are AstraZeneca ('AA-'/Stable) and Roche ('AA-'/Positive). "Both of them are overcapitalised for their current ratings" says Britta Holt, a Director in Fitch's corporate team. "In contrast, Novartis ('AA'/Stable), Sanofi ('AA-'/ Stable), GlaxoSmithKline ('A+'/Stable) and Bayer ('A-'/Stable) have less headroom within their current ratings to pursue debt-financed investments", adds Holt.
Despite the continued operating headwinds in 2012, the global pharmaceuticals sector is expected to remain one of Fitch's highest-rated industries. This is due to its superior cash flow generation, large cash balances, strong liquidity and solid growth prospects - driven by high unmet medical needs, favourable demographics, technological advances and the persistence of chronic diseases. In the event that companies decide to significantly change their financial policy in 2012, which Fitch deems unlikely, the agency believes that the 'A' category will generally be the lowest preferred rating category for large pharmaceuticals companies, to ensure access to the Tier-1 commercial paper market.