Announcement of Periodic Review: Moody’s announces completion of a periodic review of ratings of Novartis AG
Global Credit Research – 11 Aug 2020
Paris, August 11, 2020 — Moody’s Investors Service (“Moody’s”) has completed a periodic review of the ratings of Novartis AG and other ratings that are associated with the same analytical unit. The review was conducted through a portfolio review in which Moody’s reassessed the appropriateness of the ratings in the context of the relevant principal methodology(ies), recent developments, and a comparison of the financial and operating profile to similarly rated peers. The review did not involve a rating committee. Since 1 January 2019, Moody’s practice has been to issue a press release following each periodic review to announce its completion.
This publication does not announce a credit rating action and is not an indication of whether or not a credit rating action is likely in the near future. Credit ratings and outlook/review status cannot be changed in a portfolio review and hence are not impacted by this announcement. For any credit ratings referenced in this publication, please see the ratings tab on the issuer/entity page on www.moodys.com for the most updated credit rating action information and rating history.
Key rating considerations are summarized below.
The A1 rating of Novartis AG (Novartis) reflects its large scale and leading positions in pharmaceuticals and generics, which create economies of scale, strengthen bargaining power and increase resilience to changes in demand; its strong business diversification with limited product concentration; its pipeline that is one of the strongest in the pharmaceutical industry, with several blockbuster candidates across many therapeutic areas; its strong cash flow generation, with $4.5 billion of Moody’s-adjusted free cash flow generated in 2019; and its ownership of a 6.2% equity stake in Roche Holding AG (Roche, Aa3) which could be sold in case of need.
However, these factors are balanced against a financial policy that has grown more shareholder friendly over time; an increasing exposure to innovative pharma, which carries higher overall risk; some exposure to patent expiries, notably on Afinitor (cancer) and Gilenya (multiple sclerosis); a degree of event risk because Novartis will continue to seek acquisitions to strengthen its pharmaceutical franchise; and exposure to regulatory and legislative efforts aimed at reducing drug prices.
This document summarizes Moody’s view as of the publication date and will not be updated until the next periodic review announcement, which will incorporate material changes in credit circumstances (if any) during the intervening period.
The principal methodology used for this review was Pharmaceutical Industry published in June 2017. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.
This announcement applies only to EU rated and EU endorsed ratings. Non EU rated and non EU endorsed ratings may be referenced above to the extent necessary, if they are part of the same analytical unit.
This publication does not announce a credit rating action. For any credit ratings referenced in this publication, please see the ratings tab on the issuer/entity page on www.moodys.com for the most updated credit rating action information and rating history.
Vincent Gusdorf, CFA VP - Senior Credit Officer Corporate Finance Group Moody's France SAS 96 Boulevard Haussmann Paris 75008 France JOURNALISTS: 44 20 7772 5456 Client Service: 44 20 7772 5454 Jeanine Arnold Associate Managing Director Corporate Finance Group JOURNALISTS: 44 20 7772 5456 Client Service: 44 20 7772 5454 Releasing Office: Moody's France SAS 96 Boulevard Haussmann Paris 75008 France JOURNALISTS: 44 20 7772 5456 Client Service: 44 20 7772 5454
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