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S&P downgrades AbbVie, upgrades Allergan after deal completion

S&P Global Ratings downgraded AbbVie Inc.'s issuer credit rating and unsecured debt rating to BBB+ from A- after completion of its $63 billion acquisition of Allergan PLC.

The rating agency also lowered AbbVie's short-term rating to A-2 from A-1 and said the outlook on the ratings is stable.

S&P Global Ratings upgraded Allergan's issuer credit rating to BBB+ from BBB and removed it from CreditWatch with positive implications. The outlook on the ratings is stable, noting the agency's view that Allergan will remain a core subsidiary of AbbVie.

The transaction has increased the AbbVie's leverage to mid-3x, which will decline to about 3x in 2021, according to the May 8 rating action.

Ratings said AbbVie will likely carry on with moderate-sized acquisitions to expand its portfolio and product pipeline before 2023 — the year it loses exclusivity for its blockbuster drug Humira, which makes up 39% of the company's revenue.

The rating agency noted that the deal will bring in immediate cash flow, expand payer diversity and add two new therapeutic areas: medical aesthetics and ophthalmology. It will also ease off AbbVie's revenue decline in 2023 with the entry of Humira biosimilars in the U.S. market.

S&P Global Ratings noted that the deal does not meaningfully improve AbbVie's pipeline or improve its competitive position in a therapeutic area. The agency said AbbVie and Allergan have some synergy opportunities in combining their smaller respective neuroscience and women's health segments, but the deal does little to augment AbbVie's immunology or hematologic oncology segments.

Ratings said AbbVie will continue to have meaningful product concentration as Humira still makes up 39% of its revenue, and this product faces biosimilar competition in the U.S. in 2023.

Allergan's top product Botox will only account for 8% of combined company sales. The rating agency expects sales of Botox and other medical aesthetics products and services to be negatively affected this year by a reduction in elective procedures related to the global spread of COVID-19 as well as a potential tightening in consumer discretionary spending.

The rating agency said sales of the medical aesthetics business are expected to rebound and grow in 2021. It also expects Botox will continue to grow in 2021 and for the next few years, despite existing and new competition.

S&P Global Ratings said the upgrade for Allergan was to match its ratings with Abbvie, representing the agency's assessment that Allergan is a core subsidiary of AbbVie.

The stable outlook represents the rating agency's expectation for low single-digit pro forma revenue growth of the combined companies in 2020, rising to a high single-digit rate in 2021. It expects the combined company's margins to improve through the realization of synergies over the next two years and anticipates that AbbVie will prioritize debt reduction and reduce adjusted debt leverage to the 3x area in 2021.

This S&P Global Market Intelligence news article may contain information about credit ratings issued by S&P Global Ratings. Descriptions in this news article were not prepared by S&P Global Ratings.