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Moody's affirms Horizon Pharma's rating, revises outlook to stable

Moody's affirmed the corporate family rating of Dublin-based Horizon Pharma PLC and its U.S. unit at B2 and revised the outlook to stable from negative.

The rating agency said the revision in the outlook underscores Horizon's shift in focus from primary care products to rare disease products. In September 2017, Horizon hired Morgan Stanley to review strategic options, including a possible sale, for its primary care business unit.

Moody's said the outlook also reflects the company's potential to develop new medicines, especially in thyroid eye disease. The agency expects growth to continue for Horizon's orphan disease and rheumatology products. The rating agency, however, noted that pushback from insurers and other payers spells an uncertain future for the primary care products. The company also has several unresolved patent challenges.

The outlook also represents the prospect of good deleveraging, or the reduction of debt, from earnings growth. Moody's, however, expects the company's gross debt-to-EBITDA ratio — a measure of a company's ability to pay off debt — will remain more than 5x.

Moody's said the ratings could be upgraded if the company shows organic revenue growth with a more diverse array of products, favorable outcomes of the patent challenges, resolution of an outstanding Department of Justice subpoena into marketing and commercialization practices, and a debt-to-EBITDA ratio that remains below 5x.

The ratings could be downgraded if legal risks increase, declining volumes erode cash flow, pricing pressure becomes significant, generic competition arises for key products or the debt-to-EBITDA ratio remains above 7x, Moody's said.