Moody's affirms Eli Lilly on acquisition news

Moody's Investors Service said it affirmed the ratings of Eli Lilly and Co., including the A2 senior unsecured rating and the prime-1 commercial-paper rating.

The outlook is stable.

The affirmations follow news that Eli Lilly will acquire Loxo Oncology, Inc. for about $8 billion, Moody's said.

The acquisition is credit negative because it increases financial leverage and will not become cash flow accretive for several years, the agency explained.

The transaction is also subject to commercialization and pipeline execution risks, Moody's said.

The ratings reflect a view that Lilly's debt-to-EBITDA ratio will decline from about 3.7x pro forma for Loxo to 3x by year-end 2019, the agency said.

This incorporates an expectation for significant debt reduction during 2019 using strong free cash flow, Moody's said.

The ratings also consider the company's good scale and solid competitive position, high profit margins and strong cash flow, the agency said.

Lilly's sales are somewhat concentrated in diabetes, which constitutes more than 35% of sales, Moody's explained.

But several newer products and pipeline launches will help drive growth, the agency said.

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