trending Market Intelligence /marketintelligence/en/news-insights/trending/IfQYO-WGQ_a6iff6kSMadg2 content
Log in to other products

Login to Market Intelligence Platform

 /


Looking for more?

Contact Us

Request a Demo

You're one step closer to unlocking our suite of comprehensive and robust tools.

Fill out the form so we can connect you to the right person.

If your company has a current subscription with S&P Global Market Intelligence, you can register as a new user for access to the platform(s) covered by your license at Market Intelligence platform or S&P Capital IQ.

  • First Name*
  • Last Name*
  • Business Email *
  • Phone *
  • Company Name *
  • City *
  • We generated a verification code for you

  • Enter verification Code here*

* Required

Thank you for your interest in S&P Global Market Intelligence! We noticed you've identified yourself as a student. Through existing partnerships with academic institutions around the globe, it's likely you already have access to our resources. Please contact your professors, library, or administrative staff to receive your student login.

At this time we are unable to offer free trials or product demonstrations directly to students. If you discover that our solutions are not available to you, we encourage you to advocate at your university for a best-in-class learning experience that will help you long after you've completed your degree. We apologize for any inconvenience this may cause.

In This List

S&P: Negative outlook on pharmaceutical industry; more downgrades in 2019

COVID-19 Pandemic Likely To Cause US Telemedicine Boom

Gauging Supply Chain Risk In Volatile Times

S&P Global Market Intelligence

Cannabis: Hashing Out a Budding Industry

Segment

IFRS 9 Impairment How It Impacts Your Corporation And How We Can Help


S&P: Negative outlook on pharmaceutical industry; more downgrades in 2019

S&P Global Ratings assigned a negative outlook to the pharmaceutical industry, with ratings downgrades expected to outnumber upgrades in 2019.

In a March 12 report, Ratings said increasing M&A activity, intensifying pricing pressures and regulatory scrutiny in the U.S., along with the opioid crisis are key drivers of rating pressure in the pharmaceutical sector.

According to Ratings, the pharmaceutical industry has been suffering from deteriorating ratings — 17 downgrades and two upgrades in investment-grade pharma companies — during the 2014 to 2018 period, with majority of the downgrades due to M&A activity.

M&A is generally negative for creditworthiness since deals are usually financed at least in part with debt, Ratings noted. A high debt leverage nearly always outweighs the benefits of these transactions to a company's business profile.

Ratings believes that M&A activity will increase in 2019 as companies seek ways to expand their product pipeline and establish a presence in oncology, a rapidly growing and highly profitable therapeutic area.

Indeed, large transactions have been announced early into the year, such as Bristol-Myers Squibb Co.'s $74 billion deal to acquire Celgene Corp. and Eli Lilly and Co.'s recently completed $8 billion acquisition of cancer specialist Loxo Oncology Inc. In February, Swiss drugmaker Roche Holding AG was the latest to join the M&A fray, picking up gene therapy specialist Spark Therapeutics Inc. in a $4.3 billion all-cash deal.

If M&A activity does not rise, it is expected that pharmaceutical companies will use their large cash balances for shareholder returns instead of debt reduction, a move viewed by Ratings as worse than deal spending due to lack of value return.

Pricing pressure and reform

Ratings said pharmacy benefit managers and the U.S. Food and Drug Administration's initiatives will exert more pricing pressure on the U.S. branded pharmaceutical industry.

The agency believes PBMs are being criticized for their business model, which allegedly create distorted incentives that may spur growth in gross list prices and rebates, as well as for impeding price transparency through nondisclosure agreements. As a result, PBMs are expected to increase their efforts of reducing net prices as a way of showing their value to payors and patients.

Additionally, the FDA has been working on expediting generic approvals, which will not only increase pricing pressure but competition as well. In addition, the U.S. regulator has initiated regulations that clarify pathways for the smoother approvals of biosimilar and complex generics.

Another factor considered to impact ratings is increased legislative scrutiny on U.S. drug pricing. The U.S. administration and legislators have proposed various plans for drug pricing form, some of which may disproportionately affect certain ratings.

One of the proposals in the more advanced stages of legislation is looking to end rebates paid by pharmaceutical companies to PBMs for Medicare. Other Medicare-related plans include reimbursement changes under the part B program that covers drugs administered in a doctor's office, allowing Medicare to negotiate drug prices, provide Medicare benefits for all U.S. citizens and link drug prices Medicare pays to those of certain other reference countries.

Ratings believes a combination of the different proposals could succeed, resulting in not more than a moderate reduction in profitability for the pharmaceutical market. The industry could still be healthy enough to attract capital and to fund innovation, the agency added.

Opioid crisis

An October 2018 report by Ratings noted that healthcare companies are facing declining sales and increasing risk of litigation as various cities and municipalities continue their efforts to fight the nation's ongoing epidemic.

Ratings said it is still early to determine the potential liability in opioid litigation since it could take many years before it is fully resolved. However, the rating agency expects pharmaceutical companies facing lawsuits connected to opioid will incur a modest level of litigation expenses.

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.