Regeneron Pharmaceuticals, Inc. -- Moody's assigns Baa3 issuer rating to Regeneron
Rating Action: Moody's assigns Baa3 issuer rating to Regeneron
Global Credit Research - 05 Aug 2020
New York, August 05, 2020 -- Moody's Investors Service ("Moody's") assigned a Baa3 issuer rating to Regeneron Pharmaceuticals, Inc. ("Regeneron"). The outlook is stable.
Ratings assigned:
Senior unsecured issuer rating, Baa3
Outlook Actions:
Outlook assigned stable
"Regeneron's investment grade rating reflects growing global scale, strong scientific expertise, and an extremely conservative balance sheet, with very low financial leverage helping to mitigate business risks," stated Michael Levesque, Senior Vice President.
"These risks include high revenue concentration in Eylea, which faces biosimilar risk around 2024-2025, exposure to US drug pricing regulations, and pipeline execution risk," continue Levesque.
RATINGS RATIONALE
Regeneron's Baa3 rating reflects its moderate, but growing scale in the global pharmaceutical industry in which its R&D capabilities have produced several biotechnology blockbusters. These include eyecare treatment Eylea and immunology drug Dupixent, marketed through successful collaborations with Bayer AG (Baa1 stable) and Sanofi (A1 stable), respectively. Solid growth in these products will continue, reflecting rising underlying demand. The recently launched immuno-oncology drug Libtayo and a rich pipeline of drugs under development also create long-term growth opportunities. Strong cash flow and earnings growth will help sustain very low financial leverage absent debt-financed acquisitions. The company has a long track record of low leverage and conservative financial policies.
These strengths are tempered by limited diversity at the product and geographic level, with Eylea generating about two-thirds of revenue currently. While Dupixent's rapid growth will improve diversity, the entry of Eylea biosimilar competition will create a very large earnings headwind, potentially from 2024 through 2026. Meanwhile, high concentration in the US market exposes Regeneron to various proposals aimed at lowering drug prices -- a key social risk.
Social and governance considerations are material to Regeneron's credit profile. Moody's regards the coronavirus pandemic as a social risk under Moody's ESG framework, given the substantial implications for public health and safety. Regeneron's performance will remain negatively pressured by closures and reduced hours of medical offices, since Eylea and several other of Regeneron's products are administered by healthcare providers. At the same time, Regeneron faces social opportunities because of its ongoing development of antibody drug cocktails that could be effective treatments for COVID-19, or have protective qualities. Through a collaboration with the US government, Regeneron is conducting human clinical trials with these experimental compounds.
Beyond the coronavirus outbreak, other social risks for pharmaceutical companies include exposure to regulatory and legislative efforts aimed at reducing drug prices. These are fueled in part by demographic and societal trends that are pressuring government budgets because of rising healthcare spending. With its high revenue concentration in the US market, Regeneron faces above-average exposure to regulations or legislation aimed at US drug pricing. At the same time, Eylea is one of the drugs with the highest level of spending by the Medicare Part B program, which covers provider-administered products. Higher prices of these drugs in the US compared to other countries exposes Regeneron to the risk of changing Medicare Part B reimbursement, including a proposed international pricing index model. Social risks also include the recent lawsuit by the US Department of Justice alleging that Regeneron's donations from 2013 to 2014 to charitable organizations that helped cover Medicare copayments for macular degeneration drugs, which includes Eylea, violated federal law.
Among governance considerations, Regeneron's financial policies have included a low appetite for carrying debt, and the company has refrained from large acquisitions. The company is founder-led, has a deep scientific culture, and its board of directors has considerable healthcare expertise and academic experience.
The rating outlook is stable, reflecting Moody's expectation that debt/EBITDA will be sustained below 2.0x (including capitalized leases) and that growth in Dupixent will buffer the company's exposure to upcoming Eylea biosimilars.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATING
Factors that could lead to an upgrade include a substantial increase in revenue diversity, good pipeline execution including Dupixent add-on indications and immuno-oncology combination therapies, and debt/EBITDA sustained below 1.0x.
Factors that could lead to a downgrade include a substantial faltering in Dupixent's growth trajectory, a material change in pricing flexibility resulting from legislative or regulatory changes, or significant debt-financed acquisitions. Quantitatively, debt/EBITDA sustained above 2.0x could result in a downgrade.
Headquartered in Tarrytown NY, Regeneron Pharmaceuticals, Inc. is a global biotechnology company with focus areas that include eye diseases, allergic and inflammatory diseases, cancer, cardiovascular and metabolic diseases, pain and infectious diseases. Annual revenues reflecting recent accounting reclassifications total approximately $7 billion.
The principal methodology used in this rating was Pharmaceutical Industry published in June 2017 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1062755. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.
REGULATORY DISCLOSURES
For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.
For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.
The rating has been disclosed to the rated entity or its designated agent (s) and issued with no amendment resulting from that disclosure.
This rating is solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.
Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.
Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.
At least one ESG consideration was material to the credit rating action(s) announced and described above.
The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.
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Michael Levesque, CFA Senior Vice President Corporate Finance Group Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 Jessica Gladstone, CFA Associate Managing Director Corporate Finance Group JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 Releasing Office: Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653
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