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Moody's cuts pharma, medical tech outlooks from positive to stable due to price pressures, strong dollar

TRENTON, N.J. – Moody’s Investors Service has reduced its outlook from positive to stable for both the pharmaceutical and medical device industries.

The ratings agency on Thursday cited multiple headwinds, topped by two impacting both sectors. The strong dollar is reducing company sales outside the U.S., and insurers and other payers are pressing manufacturers to reduce prices in the U.S. and many other countries.

Drugmakers also have been hurt by slower-than-expected uptake for many drugs anticipated to eventually produce annual sales in the billions, excepting a new generation of cancer drugs which stimulate the immune system. That’s mainly because insurers and some foreign government health programs have been limiting or delaying patient access to new products that cost tens of thousands of dollars a year or more.

Moody’s expects plenty of mergers and acquisitions as drug and device makers work to cut costs, boost sales and add new products. In another positive, Moody’s notes that the impact of patent expirations will remain modest until next year, except for the most lucrative cholesterol drug, AstraZeneca PLC’s Crestor. That’s expected to get generic competition in about two months in the U.S. and next year in Europe.

Moody’s, which has had a positive outlook for drugmakers since September, now expects growth in earnings before taxes, depreciation and other items over the next 12 to 18 months will be 3 per cent to 4 per cent, down from 4 per cent to 5 per cent.

For the medical device sector, which Moody’s expects to be squeezed by flat hospital admissions, it now forecasts growth over the next 12 months to 18 months of 2.5 per cent to 3.5 per cent.

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