Fixed-income professionals are questioning whether triple-A pharmaceutical companies may shift business models to benefit shareholders to compensate for sparse equity returns. The bond market set fears this attention to equity could weaken companies and result in ratings downgrades.
Merck is the only company on review for downgrade by Moody's Investors Service but the rating agency has a negative outlook on the entire pharmaceutical sector. Michael Levesque, v.p. and senior analyst at Moody's, said rising exposure to patent expiration, competition and pricing pressure due to the Medicare drug bill are concerns for the entire sector. He emphasized the negative sector outlook reflects a long-term view that goes beyond the current stable, triple-A ratings for companies such as Pfizer Inc. Paul Fitzhenry, spokesman for Pfizer, did not return a call.
The fate of pharma ratings is noteworthy because companies in the sector are some of the only non-financial triple-A corporates. "One needs to ask the question if there is any business rationale behind maintaining a triple-A balance sheet with shareholder returns under pressure," said one high-grade strategist.
