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Fitch affirms Merck & Co.'s ratings on favorable operating profile

Fitch Ratings affirmed Merck & Co. Inc.'s long-term issuer-default rating at A+ and its short-term issuer default rating at F1 with a stable outlook.

The affirmation reflects the company's favorable operating profile regarding scale, breadth, depth, geographic reach and patent risk compared to its competition in the pharmaceutical industry including Eli Lilly and Co. and Amgen Inc., the rating agency said.

Merck's intermediate-term patent risk is manageable and accompanied by an advancing pipeline that is expected to make up for some sale losses from generic and biosimilar competition, supporting future operational and financial stability, Fitch added.

Fitch said it expects Merck to pursue mainly targeted acquisitions in the intermediate-term as the company has improved its operational and financial prospects by getting regulatory approvals on late-stage pipeline projects and has continued to add to its pipeline with new and advancing projects, reducing the need for large strategic business combinations to fill pipeline gaps or offset sales losses from patent expiries

The Kenilworth, N.J.-based company's free cash flow from 2019 to 2022 could reach $5.4 billion to $5.6 billion annually, which the agency anticipates to incrementally increase during the multiyear forecast period as a result of moderately improved margins and stronger top-line growth.