2008-12-19 22:36:08 -
Fitch Ratings has affirmed Pfizer Inc.'s (Pfizer) Issuer Default Ratings (IDRs) and debt ratings as follows:
--Long-term IDR at 'AA+';
--Short-term IDR at 'F1+';
--Senior unsecured debt rating at 'AA+';
--Bank loan rating at 'AA+'.
The ratings apply to approximately $16.3 billion of debt. The Rating Outlook remains Negative.
Pfizer has been successful at mitigating the effects of the patent expiry of three of its six top-selling pharmaceuticals since the second quarter of 2006, from solid performace of medicines launched since 2005, including Lyrica, Sutent, and Chantix, as well as major restructuring initiatives starting in 2005. During this period of patent losses, EBITDA and revenues have stayed at
consistent levels. The company is now tasked to counter a period of significant drug patent expiration in 2011-2012, which includes the loss of market exclusivity in 2011 for Lipitor representing 26% of total revenues. Fitch anticipates the worst affect of patent expirations will occur in 2012.
Pfizer's slimming R&D pipeline requires the highest investment in the industry as the company spent $7.4 billion for the latest 12-month (LTM) period at the end of the third quarter. The company recently pared back the size of the overall R&D program, now placing primary focus on only six disease states (which no longer includes cholesterol-lowering). The company's current late-stage program is thin compared to its peers, and is not expected to fully replace potential losses from patent losses in 2011-2012. The company is challenged in 2009 to expand its late-stage pipeline either from progression of the mid-stage portfolio or external licensing to help mitigate the maturing portfolio risk.
The company maintained very strong liquidity with a cash balance and short-term investments totaling $26 billion on Sept. 30, 2008. Additionally, the company doubled its lines of credit to $7.4 billion by the end of the third quarter from $3.7 billion at the end of 2007. Pfizer maintains a $12 billion commercial paper program. Free cash flow improved to $5.8 billion for the LTM period at the end of the third quarter from $3.4 billion in 2007, despite generic competition to key products, Camptosar and Norvasc. Fitch expects relatively stable free cash flow generation prior to the period of patent losses, and a significant departure from historical levels in 2011-2013.
Leverage has returned to historical level at approximately 0.8 times (x) through the LTM period at the end of the third quarter, as Pfizer resumed significant commercial paper borrowing during the year. Leverage is expected to remain relatively consistent with the current rating category through the company's patent cliff in 2011-2012, supported by a light debt maturity schedule during this time. Fitch believes the current buildup of short-term debt may predicate aggressive M&A activity in the near-term to counter future revenue and earnings losses from the maturing product portfolio.
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. The issuer did not participate in the rating process other than through the medium of its public disclosure.
Fitch Ratings
Michael Zbinovec, +1-312-368-3164 (Chicago)
Bob Kirby, +1-312-368-3147 (Chicago)
Media Relations:
Cindy Stoller, +1-212-908-0526 (New York)
cindy.stoller@fitchratings.com 
