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Announcement:
Moody's: Japanese pharmaceutical companies' expiring drugs patents could prompt strategic alliances
Global Credit Research - 20 Oct 2016
Tokyo, October 20, 2016 -- Moody's Japan K.K. says that the expiry of key drug patents over the next 1-3 years will pressure the revenues of the rated Japanese pharmaceutical companies, and could prompt the formation of strategic allegiances and acquisitions.
"While all three rated pharmaceuticals companies are implementing countermeasures, we believe it will be difficult for them to compensate for the loss in revenue from these key products, which account for around 11%-34% of their respective revenues -- a credit negative," says Kailash Chhaya, a Moody's Vice President and Senior Analyst.
"As such, we believe the companies will pursue strategic alliances with other pharmaceutical companies with niche capabilities in certain geographies or products and to pursue acquisitions, both in an effort to maintain low- to mid-single-digit revenue growth," adds Chhaya.
Moody's conclusions are contained in its just released report, titled "Pharmaceuticals -- Japan: Key Patent Expiries to Pressure Revenues, Drive Strategic Alliances/Acquisitions".
Moody's report highlights that all three pharmaceutical companies that it rates in Japan -- Takeda Pharmaceutical Company Limited (A1 stable), Astellas Pharma Inc. (A1 stable) and Daiichi Sankyo Company, Limited (A1 negative) -- have patents expiring for some of their key global products between 2016 and 2019.
Daiichi Sankyo will lose its patents on the Olmesartan family of products (antihypertensive agent) in the US in late 2016, and the EU and Japan in 2017. Takeda will lose its US patent on top-selling Velcade (for multiple myeloma) in late 2017. Astellas will lose its patent on Vesicare (for overactive bladder) in the US, EU and Japan between 2018 and 2020 and Tarceva (for non-small cell lung cancer and pancreatic cancer) in the US in 2019.
Moody's expects revenues from these drugs could fall 30%-40% in the year following the launch of the generic versions.
Despite various countermeasures, including rapid market development of recently launched high-potential products, effective late-stage pipeline commercialization and cost cuts, Moody's expects all three will experience revenue shortfalls.
The shortfall will likely be greatest for Daiichi Sankyo, because the Olmesartan family of products -- an antihypertensive agent whose patent will expire in the US in late 2016 and in the EU and Japan in 2017 -- accounted for around 28.8% of consolidated revenue in the fiscal year ended March 2016 (FYE3/2016).
In the absence of material new internal sources of revenue, Moody's expects the pharmaceutical companies will be strongly incentivized to pursue strategic alliances or acquisitions.
The primary goal of acquisitions will likely be to strengthen the companies' existing therapeutic categories, rather than to takeover large competitors with unrelated businesses.
Moody's says such transactions could pressure the companies' ratings if they are large and mostly debt-funded, while smaller acquisitions of niche high potential products and late-stage pipelines would conversely be positive for their ratings.