S&P Revises Outlook on AbbVie (ABBV) to Negative Following Pharmacyclics (PCYC) News

Standard & Poor's Ratings Services today affirmed all of its ratings on AbbVie Inc. (NYSE: ABBV), including the 'A' corporate credit rating. The outlook is negative.

AbbVie will acquire Pharmacyclics for $21 billion and will finance the acquisition with debt and equity. The rating affirmation reflects our belief that AbbVie can temporarily withstand higher leverage over the next two years.

"The negative outlook reflects the potential for the company to sustain leverage at more than 2x--a level higher than typical for the rating--beyond 2016," said Standard & Poor's credit analyst Michael Berrian. In particular, AbbVie will be operating at a higher level of leverage despite concentration in Humira and during a period when there could be pressure to diversify against the drug given a U.S. patent expiration at the end of 2016.

AbbVie's financial risk profile reflects pro forma leverage that we expect will be more than 2x through 2016. In particular, leverage of about 2.9x in 2015 will decline to the mid-2x range in 2016 and to about 2x in 2017. We are revising our assessment of financial risk to "modest" to reflect this increase in leverage.

The negative outlook reflects a risk to our base case, which indicates that our deleveraging scenario could be jeopardized by more debt-financed acquisitions as the company manages through the upcoming patent expiration on Humira.

We see two pathways to a lower rating. AbbVie does not have capacity for a significant debt-financed acquisition at this time, so we could lower the rating if the company made a sizable debt-financed acquisition. We could also lower the rating if sales of Imbruvica do not meet our expectations or significant challenges to Humira's market position develop, particularly from the launch of a biosimilar. In these scenarios, leverage would not likely decline as we project.

We could consider revising the outlook back to stable if the company meets our base-case expectations and leverage declines to less than 2x in 2017.

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