OREANDA-NEWS. December 16, 2015. Fitch Ratings says in a new report that the Rating Outlook for the global pharma sector remains Negative for 2016, reflecting companies' willingness to stretch their financial profiles in the near term in response to a rapidly evolving sector.

Fitch says the industry's focus on patient value, a firm pace of innovation, a benign financing environment and favourable tax considerations contributed to a sharp increase in M&A across the sector in 2015. This has resulted in declining debt capacity and rating headroom for Fitch-rated pharma companies as reflected in the Negative Rating Outlook for 2016. UK players GSK and AstraZeneca (both rated A+) have Negative Outlooks due to weaker cash flows as a result of loss of patent protection for key blockbuster drugs and increased investment in bringing late-stage pipeline drugs to market.

In the US the announcement of the combination Pfizer (A+) with Allergan (BBB-, formerly Actavis) has led to a Negative and Positive Watch, respectively, to be resolved once the details of the transaction and the future financial policies of the enlarged group become apparent.

Long-term fundamentals point to a stable trend in the pharma industry, as an ageing and growing world population, combined with increasing innovation and global access to healthcare, balances intensifying efforts from healthcare authorities to reduce costs, improve outcomes and focus on patient value.

As a result, Fitch expects demand for generic drugs to continue to rise as payers pursue avenues to manage costs and rebalance their spending priorities in anticipation of the introduction of expensive new treatments. We believe biosimilars will be a key driver of growth in developed markets, particularly the US, after the launch of the first biosimilar agent in 2015 paved a comprehensive regulatory pathway for these drugs.