Drug industry outlook negative through 2012, Moody’s says

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Drug companies’ debt ratings may be cut this year or next as patents on some of the world’s top-selling medicines expire, Moody’s Investors Service said.

Earnings growth will continue to slow in 2011 for most of the industry’s biggest companies, Marie Fischer-Sabatie, a Paris-based analyst at Moody’s, wrote in a report Wednesday. That pressure may increase next year and affect some ratings or outlooks, she said.

Patents on treatments including Pfizer Inc.’s Lipitor cholesterol-lowering pill and Indianapolis-based Eli Lilly and Co.’s Zyprexa antipsychotic will expire in late 2011 and 2012, while the number of new products ready for marketing are “relatively weak,” Moody’s said. The outlook for generic-drug producers such as Teva Pharmaceutical Industries Ltd. is more positive because they will benefit from the patent expirations, it said.

“The quality of late-stage pipelines, a key indicator of future growth, is on average insufficient to offset the expected revenue losses,” Fischer-Sabatie wrote in the report. “New product launches remain slow as the industry comes up against high regulatory hurdles at a time when the pool of potential blockbuster opportunities is shrinking.”

Spending reductions, price increases in the United States and revenue from emerging markets will help drugmakers offset declining profit this year, though 2012 is likely to be “more challenging,” Moody’s said.

Global health-policy reforms hurt profit more this year as the effects of last year’s price cuts and additional measures this year dragged down results, according to the report. Pricing pressures will “persist and intensify” in Europe, Moody’s said. Companies that make biological medicines from living cells may be threatened as new measures in Europe and the U.S. permit the introduction of similar competitors, Moody’s said.

“The adoption of biosimilars presents downside risk for branded biotechnology companies, and upside potential for generic companies,” Moody’s said. “There remain several uncertainties concerning the approval of these products and that the first biosimilars are still some years off in the U.S.”


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