2009-08-27 16:19:01 -
Fitch Ratings has affirmed Bristol-Myers Squibb Co.'s (Bristol-Myers Squibb) ratings as follows.
--Long-term Issuer Default Rating (IDR) at 'A+';
--Senior unsecured debt at 'A+';
--Bank loan at 'A+';
--Short-term IDR at 'F1';
--Commercial paper at 'F1'.
The ratings apply to approximately $6.4 billion of outstanding debt. The Rating Outlook is Stable.
The rating affirmation recognizes that Bristol-Myers Squibb has
taken significant steps to mitigate the effects of the looming patent expiries of Avapro and Plavix in 2011, including streamlining the product portfolio, extending a vital agreement with Otsuka Pharmaceutical Co., Ltd. regarding Abilify, commercializing the potential blockbuster Onglyza, and controlling expenses and cash flow.
Fitch believes that operational strength, coupled with a solid intellectual property position, will improve financial metrics in the intermediate term, as Bristol-Myers Squibb is relatively free of intellectual property losses in the U.S. As such, leverage (total debt to EBITDA) has significantly decreased to 1.1 times (x) for the latest 12-month (LTM) period ending June 30, 2009 from as high as 2.0x at the end of 2006 (due to generic competition to Pravachol and Plavix). Fitch anticipates further modest declines in leverage until the company experiences the full affect of the patent losses in 2012. The long-term debt schedule does not include significant maturities around the time of the Plavix patent expiration.
Considerable uncertainty exists for the subsequent period to the patent losses of two of the company's top-selling pharmaceuticals. Growth of the pharmaceutical portfolio as well as an estimation of commercialization of Bristol-Myers Squibb's present late-stage pipeline cannot fully fill the revenue void left by the patent expiries. Absent new key revenue and cash flow drivers, accomplished through internal research or business development, financial measures are expected to deteriorate rapidly and pressure the current rating category following the drug patent lapses. Although Bristol-Myers Squibb currently maintains a conservative acquisition stance, a pressing need closer to the patent losses may prompt action toward a leveraging transaction.
Margins have expanded from cost initiatives started in December 2007 and broadened in July 2008 to a total savings target of $2.5 billion by 2012. Around $1.5 billion of the expected annual savings are expected by 2010. EBITDA margin has increased to 27.9% for the LTM period ending June 30, 2009 from 25.6% in 2008 and 22.3% in 2007. Additional margin support is derived through the company's risk-sharing development and marketing agreements with AstraZeneca plc and Pfizer Inc. that reduce current operating costs necessary to commercialize the key R&D projects under contract, apixaban and dapaglifozin.
Moreover, cash flow improvement, included in management incentive awards for 2009, may be derived from working capital savings targeted between $750 million and $1 billion by 2011. Free cash flow generation is not historically strong for Bristol-Myers Squibb given a variety of operational and legal challenges over the past years. Negative free cash flow of $272 million occurred for the LTM period ending June 30, 2009, brought down by $618 million of contributions to an under-funded U.S.
pension plan. However, Fitch believes that cash flow will rebound from modest to negative free cash flow in 2009 to greater than $500 million in 2011, as the company reaps the benefits of a solid intellectual property position during that period.
Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, ' www.fitchratings.com :
'.
Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.
Fitch RatingsMichael Zbinovec, +1-312-368-3164 (Chicago)Bob
Kirby, +1-312-368-3147 (Chicago)Cindy Stoller, +1-212-908-0526
(Media Relations, New York)
cindy.stoller@fitchratings.com : mailto:cindy.stoller@fitchratings.com
