Moody’s Japan K.K. has placed the A1 issuer and senior unsecured ratings of Takeda Pharmaceutical Company Limited under review for downgrade.

“We placed Takeda’s issuer and senior unsecured ratings under review for downgrade, principally because of our expectation that if its acquisition of shares in ARIAD Pharmaceutical is successful, its leverage will rise beyond the range consistent with its current rating,” says Kailash Chhaya, a Moody’s Vice President and Senior Analyst, as well as the Lead Analyst for Takeda.

Moody’s believes the acquisition is in line with Takeda’s strategy of strengthening its core therapeutic areas by acquiring small to mid-size pharmaceutical companies with established products and promising pipelines. Such acquisitions could help Takeda offset the impact of a decline in the sales and profits of its major products facing patent expiry in the US.

Nevertheless, the acquisition will increase Takeda’s leverage and weaken liquidity beyond the levels that its current ratings can absorb. Moody’s review of the ratings could result in either a one or two-notch downgrade.

Moody’s review will focus on the regulatory approvals needed for the transaction to go ahead; Takeda’s post-transaction balance sheet; the likely pace of its debt reduction over the medium term; and its future financial policy, including its appetite for additional acquisitions over the next 1-3 years.

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