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S&P Lowers AstraZeneca Outlook on Weakening Sales

Mon, 04/08/2013 - 5:10pm
The Associated Press

Standard & Poor's Ratings Service lowered its credit rating outlook on AstraZeneca PLC on Monday, citing the pharmaceutical company's declining revenue as its patents on Seroquel IR and other key drugs expire.

Analyst Olaf Toelke lowered his outlook to "negative" from "stable." Toelke said the company's credit quality will decrease as the patents on important products like Seroquel IR, a treatment for schizophrenia, along with AstraZeneca's heartburn drug Nexium and its cholesterol drug Crestor, expire and lower-cost versions reach the market.

Toelke rates AstraZeneca's credit at 'AA-'. That is an investment grade rating, seven notches above "junk" status. He said the company still has a strong product portfolio, but the negative outlook means there is a greater chance of a downgrade. The analyst said that could happen if the company can't stem the decline in its revenue. Its sales dropped to $28 billion in 2012 from $33.6 billion in 2011.

"We believe that the group's newly released strategy, which focuses mainly on cost cutting and organic development, will likely not meaningfully mitigate expected continuing short-term negative effects on credit quality," Toelke said.

AstraZeneca said in March that it will eliminate 1,600 jobs, or about 3 percent of its staff positions. Days later the company said it would cut another 2,300 jobs as part of an overhaul of its research operations. CEO Pascal Soriot said the company will focus on the most important projects in its development pipeline. AstraZeneca has announced about 11,000 job cuts since early 2012.

Toelke noted the company's profit margins were badly hurt by the introduction of generic Seroquel IR in 2012. Generic versions of Nexium and Crestor have already reached the market in Western Europe, hurting AstraZeneca's sales in that region, and generic competition in the U.S. could begin in 2014 for Nexium and in 2016 for Crestor.

U.S.-traded shares of AstraZeneca rose 9 cents to $50.52 on Monday.

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