S&P Global Ratings downgraded Gilead Sciences Inc.'s ratings by two notches to BBB+ to account for the company's $21 billion acquisition of Immunomedics Inc.

Ratings also removed the Foster City, Calif.-based pharmaceutical giant from CreditWatch negative status and set the outlook to negative.

The rating agency believes the deal will advance Gilead's presence in the oncology market but does little to alleviate the near-term concentration in HIV products and the absence of revenue growth over the coming two to three years.

While it also believes that Morris Plains, N.J.-based Immunomedics' Trodelvy, a third-line treatment for triple-negative breast cancer, has potential applications in other diseases, the agency said that incremental research and development and marketing expenditures on the product will limit near-term benefit to profitability.

Intensifying competition in the HIV and hepatitis C virus markets is constraining Gilead's revenue growth for the next few years, according to Ratings. Gilead is becoming more reliant on mergers and acquisitions for significant revenue growth as it spends modestly less on R&D than its peers, the agency said.

Other factors considered in the ratings downgrade are the loosening of the company's financial policy, Gilead's strong position in the prescription drug market, and its market leadership position in anti-viral drugs.

Ratings also said Gilead's pipeline of new products is only enough to maintain revenue levels. The agency noted that the sustainability of revenues from the company's latest product, Veklury, or remdesivir — recently approved to treat COVID-19 — is uncertain, with the World Health Organization publishing a study questioning the drug's benefits as well as those of other therapies and vaccines in development to address the respiratory disease.

The negative outlook is based on the company's limited capacity for additional debt and the risk that leverage may increase further from legal disputes or debt-financed M&A as Gilead faces pressure to enhance the prospects for revenue growth in the next two to three years, the rating agency said.

This S&P Global Market Intelligence news article may contain information about credit ratings issued by S&P Global Ratings. Descriptions in this news article were not prepared by S&P Global Ratings.