Celgene (CELG) Downgraded to 'Baa2' by Moody's

Moody's Investors Service downgraded the senior unsecured ratings of Celgene Corporation (Nasdaq: CELG) ("Celgene") to Baa2 from Baa1, concluding a review for downgrade initiated July 15, 2015. At the same time, Moody's affirmed Celgene's Prime-2 commercial paper rating. In addition, Moody's assigned a Baa2 rating to Celgene's new senior unsecured note offering. Following these actions, the rating outlook is stable.

Proceeds of the offering are to partially fund Celgene's pending acquisition of Receptos, Inc., as well as for general corporate purposes which may include share repurchases and repayment of commercial paper.

"The downgrade reflects the anticipated closing of the Receptos deal, and the higher financial leverage that results from the acquisition as well as share repurchases," stated Michael Levesque, Moody's Senior Vice President.

If the Receptos acquisition does not occur, provisions of the indenture will require the redemption of a large portion of the new bond proceeds.

Ratings downgraded:

Senior unsecured notes to Baa2 from Baa1

Senior unsecured shelf to (P)Baa2 from (P)Baa1

Ratings affirmed:

Short term rating for commercial paper at Prime-2

Ratings assigned:

New senior unsecured notes at Baa2

RATINGS RATIONALE

Celgene's Baa2 rating reflects its strong margins and cash flow, its high growth prospects, and the extremely strong market position of its multiple myeloma product franchise. Moody's expects strong high-teens growth in this franchise. Expanding usage of Revlimid is supported by various ongoing clinical trial results that are driving incremental use in multiple myeloma. Geographic expansion will also drive growth in multiple myeloma, especially following recent approval by the European Commission to use Revlimid in newly-diagnosed patients. Celgene has other strong growth drivers in Abraxane (various solid tumor oncology uses) and Otezla (psoriasis and psoriatic arthritis). Its key pipeline opportunities are GED-301 in Crohn's disease, and ozanimod (the key asset in the Receptos acquisition), a potential treatment for multiple sclerosis and ulcerative colitis.

Offsetting these strengths, Celgene has significant revenue concentration in Revlimid, and faces an unresolved patent challenge on this product. In light of revenue concentration, Celgene's financial leverage is moderately high, with pro forma debt/EBITDA of approximately 3.9x, which Moody's expects to decline below 3.0x due to EBITDA growth. Moody's anticipates that over time, Celgene's debt will rise to support the company's expansion and to cover US cash needs, such as share repurchases.

The rating outlook is stable, reflecting Moody's expectations of continued top-line growth and expanding cash flow, offset by continuing revenue concentration in Revlimid and ongoing debt increases to fund share repurchases. Moody's could upgrade the ratings if Celgene continues to sustain strong operating performance, increases its diversity such that Revlimid sales are below 50% of revenue, favorably resolves the US Revlimid patent challenge, and sustains debt/EBITDA below 2.0 times. Moody's could downgrade the ratings if Celgene faces any adverse rulings in the Revlimid patent challenge such that a generic launch could occur before 2020, suffers major pipeline setbacks, faces an unexpected downturn in Revlimid sales, or sustains debt/EBITDA above 3.0 times.

For additional information please see Moody's Credit Opinion on Celgene available on www.moodys.com.

The principal methodology used in these ratings was Global Pharmaceutical Industry published in December 2012. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

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