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Drug Industry Deals Likely to Pick Up, Moody's Says

Pharmaceutical companies will probably become more acquisitive this year as cash levels rise and financing remains inexpensive, and the size of deals is likely to increase, Moody’s Investors Service said.

Pfizer Inc. (PFE) of New York and Roche Holding AG (ROG) and Novartis AG (BEPHARM), both based in Basel, Switzerland, may be more inclined to pursue purchases after paying down debt incurred from deals made three to four years ago, Moody’s said today in a report. AstraZeneca Plc (AZN), based in London, is also likely to target companies to expand product offerings as patents on its best- selling medicines expire.

Drugmakers are more likely to make small to mid-sized deals, rather than “transformational” ones, Moody’s said. Large pharmaceutical companies can spend between $1 billion and $2 billion a year on so-called bolt-on deals without jeopardizing their ratings, Moody’s said. This year, only three takeovers valued at more than $1 billion have been announced, according to data compiled by Bloomberg.

“The number of potential acquisition targets is rising because of the higher quality of drug pipelines and advances in areas like oncology and immunology,” Moody’s analysts wrote.

Moody’s lowered its forecast for 2013 earnings growth to 1 percent from 3 percent, saying patent expirations on medicines including Eli Lilly & Co. (LLY)’s Cymbalta antidepressant and Roche’s Xeloda for cancer will hurt revenue. Price cuts, particularly in Europe, and efforts to reduce the U.S. deficit will result in sales declines of “around the mid-single-digit percentage points” this year, Moody’s said. Pricing pressure will increase in Japan in 2014, the ratings agency said.

Moody’s maintained its stable outlook for the industry.

To contact the reporter on this story: Kristen Hallam in London at

To contact the editor responsible for this story: Phil Serafino at

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