The FINANCIAL -- London-11
October 2011: Fitch ratings has affirmed UK-based pharmaceuticals
company AstraZeneca PLC's (AstraZeneca) Long-term Issuer Default Rating
(IDR) and senior unsecured rating at 'AA-' and Short-term IDR at 'F1+'.
The Outlook is Stable.
AstraZeneca's ratings are supported by its strong market position as the number-six market player within the cash generative global pharmaceuticals industry. Cash flows in the industry are relatively predictable. The ratings are also supported by the group's strong geographical diversification and high profitability. With 41.3% of 2010 group sales from the US, 27.6% from western Europe, 15.5% from rest of the developed world and 15.6% from emerging markets, the group is considered well diversified and not reliant on single health care systems.
The Stable Outlook reflects the company's significant headroom within its debt protection measures, which allows the company to pursue small- to medium-sized acquisitions without triggering any change in the ratings.
AstraZeneca's EBITDA margin is high - at 40.4% in 2010. This is helped by the group's strong presence in the highly profitable US market, its high percentage of sales generated from blockbuster drugs, restructuring activities and its lack of diversification into non-pharmaceutical healthcare areas. AstraZeneca generated 75% of 2010 group sales from its nine blockbuster drugs (each with annual sales of above USD1bn), which is the highest percentage of group sales generated by blockbuster drugs among its large European peers. This has a positive impact on profitability but also means a relatively high product concentration.
Negative rating factors include the looming patent expiration and shareholder friendly policy. 11% of AstraZeneca's 2010 sales are at risk from US patent expiration over the next three years. By 2014, the substance patents of major products - the US substance patents of Nexium for ulcers and the European and the US substance patents for the antipsychotic medication Seroquel IR - are expiring.
These expiries put pressure on AstraZeneca's research and development pipeline and might tempt the company to pursue more acquisitions. Buybacks amounted to USD2.1bn in 2010 and might reach USD5bn in 2011 - up from the USD4bn AstraZeneca had previously targeted - as the sale proceeds for the sale of AstraTech for USD1.8bn in cash will be returned to shareholders in 2011 and 2012.
AstraZeneca benefits from strong debt protection measures. Lease-adjusted net debt/EBITDAR amounted to negative 0.2x at financial year-end 2010, while EBITDA/net fixed charges stood at 27.0x.
In H111, CER sales growth was down by 3%, but unchanged in reported terms. It was negatively impacted by US generic competition for Arimidex and Toprol-XL and for Nexium and Arimidex in Europe and by government cost containment policies, which could not be compensated for by the 11% emerging market sales growth. For the full year the group expects sales to be flat or to experience a low single-digit decline compared with 2010 at CER.
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