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Investing.com -- Moody's Ratings has affirmed Organon & Co.'s Ba2 Corporate Family Rating (CFR), Ba2-PD Probability of Default Rating (PDR), Ba1 senior secured first lien bank credit facility ratings, Ba1 senior secured notes, and B1 senior unsecured notes on April 10, 2025. The speculative grade liquidity rating remains unchanged at SGL-1. However, Moody's has revised Organon's outlook to negative from stable.
The revision of the outlook to negative is due to the anticipation that Organon's leverage will continue to be high over the next 12-18 months. This is attributed to limited near-term earnings growth prospects as the company manages the recent patent expirations of its cholesterol drug Atozet, which is its second largest product by revenues.
Although growth prospects may improve over time with accelerating products like Vtama for atopic dermatitis, the overall organic growth outlook is expected to be subdued due to ongoing generic competition against its established brands. Additionally, it is expected that Organon will have limited ability to pay down debt in the next 12-18 months due to substantial one-time expenses, business development spend, and dividend payments. The negative outlook reflects uncertainty in Organon's willingness and ability to improve credit metrics while balancing financial policies with its pursuit of longer-term growth prospects.
The Ba2 Corporate Family Rating for Organon reflects its niche position in the global pharmaceutical industry, offering women's health products, biosimilars, and established off-patent products. Organon has good diversity at the product and geographic level. The established brands have good name recognition in global markets. The women's health franchise has favorable growth prospects owing to demographic trends including rising demand for fertility treatments.
However, these strengths are offset by limited organic growth due to the nature of established brands which face pricing and volume pressure amid competition from generics. Organon's free cash flow remains constrained by costs associated with restructuring activities and planned exits from supplier arrangements. Yet, free cash flow is expected to improve as these costs decline over time, which could facilitate improvement in credit ratios over time if the company chooses to pursue more moderate financial policies including debt repayment. There is an event risk of acquisitions as the company is likely to pursue initiatives to improve earnings growth.
Factors that could lead to an upgrade include improvement in organic growth rates, substantial expansion in free cash flow, and debt/EBITDA sustained below 3.5x. Conversely, factors that could lead to a downgrade include a significant contraction in revenue due to pricing pressure or competition, substantial debt-financed acquisitions, or debt/EBITDA sustained over 4.5x for a prolonged period.
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