Fitch cuts Novartis to AA- for 'acquisitive strategy'

Tuesday, 20. November 2018 14:26

Novartis AG's "portfolio transformation" since 2014 has accelerated in the past year, pushing leverage higher, Fitch Ratings said on Tuesday and revised its grade lower to AA- with a stable outlook from AA. The Swiss manufacturer of pharmaceuticals may "prioritize bolt-on acquisitions" and the strategy is implemented together with "generous" returns to shareholders and investment in research and development aimed at innovative products, the report adds.

The short-term rating was maintained at F1+. The credit appraiser highlighted the takeovers of Avexis, AAA and Endocyte, worth $14 billion in total, alongside divestments of an equivalent value, adding Novartis plans to spin off the Alcon eye care unit.

"We believe that Novartis could use its non-strategic 6.3% stake in its competitor Roche to finance larger acquisitions to protect its financial risk profile... Strong growth in new drugs, including Cosentyx, Entresto and cancer drugs obtained in the 2015 swap with GSK, mitigate declines in off-patent drugs sales and pricing pressure at Sandoz's US operations in 2018," the agency said. The company controls 33% of votes with the said shares in Roche Holding AG or F. Hoffmann-La Roche AG, also based in Basel.

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