Dark clouds may be looming on the horizon for European drug companies, long famous for their extremely high credit ratings, Moody's Investors Services said on Thursday.
Strong cashflows, healthy profits and low leverage remain the norm in the sector for now but Moody's reckons the outlook is "moderately negative", given looming threats to key patents, likely further acquisitions and shareholder calls for buybacks.
In a new report on European pharmaceutical companies, the agency forecasts a long-term negative bias in rating trends for these issuers.
"There is a risk in this industry that some players will have difficulty to sufficiently renew their portfolios through their own pipelines or, alternatively, they will go for acquisitions to rebuild the pipeline that way," Moody's Senior Vice President Jean-Michel Carayon told Reuters.
And while many of the large takeovers in the 1990s were financed by equity, this time round debt is set to dominate.
"New large acquisitions would be mostly financed by debt -- that is more likely than all-share transactions," he said.
More at Reuters
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