Celgene (CELG) Ratings Placed on Review for Downgrade by Moody's (RCPT)

Moody's Investors Service placed the Baa1 senior unsecured long-term ratings of Celgene (Nasdaq: CELG) ("Celgene") under review for downgrade. At the same time, Moody's affirmed Celgene's Prime-2 commercial paper rating. These actions follow the announcement that Celgene will acquired Receptos, Inc. (unrated) for approximately $7.2 billion, net of cash acquired. The deal is subject to regulatory review and is expected to close in 2015.

The rating review will focus on the higher financial leverage resulting from the transaction, offset by deleveraging prospects and new pipeline opportunities from the acquisition. Receptos is a development-stage pharmaceutical company that has not been profitable to date. Receptos' key pipeline product is ozanimod, an experimental oral drug that Receptos is testing in both multiple sclerosis and ulcerative colitis.

Moody's anticipates that the rating review will result in a one-notch downgrade to Baa2, all other factors being equal. This expectation results in the affirmation of Celgene's Prime-2 commercial paper rating, which Moody's is not placing under review for downgrade.

Ratings placed under review for downgrade:

Senior unsecured notes at Baa1

Senior unsecured shelf at (P)Baa1

Ratings affirmed:

Short term rating for commercial paper at Prime-2

RATINGS RATIONALE

Celgene's Baa1 rating (under review for downgrade) reflects its strong margins and cash flow, its high growth prospects, and the extremely strong market position of its multiple myeloma product franchise. These products consist of Revlimid, Pomalyst and Thalomid. Moody's expects strong double-digit growth in this franchise to continue. Geographic expansion should also drive sales over time, 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). Offsetting these strengths, Celgene has significant revenue concentration in Revlimid, and faces an unresolved patent challenge on this product. In addition, Celgene will increase its debt levels to support the company's expansion and to cover US cash needs, such as share repurchases. The acquisition of Receptos will increase Celgene's pro forma debt to EBITDA to a range of 3.5 to 4.0 times, depending on the final financing mix between existing cash and incremental debt. This compares to debt/EBITDA of 1.9 times as of March 31, 2015.

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