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Rating Action:

MOODY'S AFFIRMS RATINGS OF WYETH (Baa1 LONG TERM; PRIME-2 SHORT TERM); REVISES OUTLOOK TO DEVELOPING FROM NEGATIVE

08 Feb 2005
MOODY'S AFFIRMS RATINGS OF WYETH (Baa1 LONG TERM; PRIME-2 SHORT TERM); REVISES OUTLOOK TO DEVELOPING FROM NEGATIVE

Approximately $8.1 Billion of Rated Debt Securities Affected

New York, February 08, 2005 -- Moody's Investors Service affirmed the Baa1 long term rating and Prime-2 short term rating of Wyeth. This rating action follows Wyeth's recent announcement that it has increased its diet drug litigation reserves by $4.5 billion, bringing total charges taken to date to $21.1 billion. Following this rating action, the rating outlook is revised to developing from negative. Moody's anticipates that the outlook may be moved to stable if Wyeth is successful in executing the proposed Seventh Amendment to the National Settlement Trust.

The affirmation of Wyeth's Baa1 rating reflects: (1) Moody's belief that the $4.5 billion charge reflects the "best estimate" of Wyeth's remaining exposure as contrasted with earlier reserve charges that were characterized as the minimum expected liability; and (2) a combination of solid performance in Wyeth's core pharmaceutical business and moderating capital expenditures, resulting in stronger free cash flow.

The rating affirmation also reflects Wyeth's rating position according to Moody's recently published Global Pharmaceutical Rating Methodology, in which Wyeth scores well on many metrics, including its revenue diversity, the strength of its late stage pipeline, and its limited exposure to patent expirations through 2007.

Moody's believes that Wyeth is making progress at removing some of the uncertainty associated with its diet drug exposure. The company is awaiting judicial approval of the proposed Seventh Amendment to the National Settlement Trust, which would affect over 95% of the matrix level I and II claimants filing for benefits. Wyeth has also announced it is in discussions with various plaintiffs representing a portion of the intermediate and back-end opt out cases regarding a process for settling these cases. Through a public filing, the company has outlined a general framework for these settlement discussions. Moody's believes that Wyeth has the discretion to enter settlements that it deems to be reasonable, and that the current estimate of the liability generally incorporates reasonable estimates as to how this process may play out.

The Baa1 rating reflects Moody's assumption that Wyeth will attain cash flow from operations (before diet drug payments) to adjusted gross debt (which includes an adjustment for unfunded pension obligations and the present value of operating leases) in the range of 35-40%, and free cash flow (before diet drug payments) to adjusted debt of 15-20% for the years ending December 31, 2005 and 2006. Moody's currently believes these metrics can be attained even if the remaining unpaid diet drug liability of $7.1 billion is paid out over a relatively short time period, such as 2 years. Moody's also estimates that an unexpected new reserve charge of $1 to $2 billion may still allow Wyeth to achieve these metrics, although Moody's will need to consider any developments affecting the company's core pharmaceuticals business, which may include increased competition and pricing pressures.

There remains uncertainty related to Wyeth's diet drug liabilities, especially under the following scenarios: (1) if the company settles opt out cases at a cost much greater than currently estimated; (2) if Wyeth's efforts to appeal high court awards are unsuccessful, such as those associated with PPH cases; or (3) if the Seventh Amendment is not finalized. Under the most likely scenario, however, Moody's believes that Wyeth will be able to absorb settlements and court awards within the current reserve estimate, and within the credit metrics specified above.

As a result, Moody's is revising Wyeth's rating outlook to developing from negative, pending successful execution of the proposed Seventh Amendment. Assuming there are no major negative developments related to PPH cases, intermediate or back-end opt out cases, or any other unforeseen change in Wyeth's business profile, Moody's anticipates moving the rating outlook to stable. Conversely, the rating outlook could return to negative or the rating could be downgraded if the Seventh Amendment is not finalized.

Over the longer term, Wyeth's rating will depend on a combination of financial metrics such as cash flow relative to debt, and operating metrics including the projected peak sales from its pipeline relative to its exposure to patent expirations. Upward rating pressure could result if Wyeth's cash flow from operations to adjusted gross debt and free cash flow to adjusted gross debt exceed 40% and 20% respectively. Downward rating pressure could occur if Moody's estimates that these metrics will fall below 35% and 15% respectively. Moody's will also consider Wyeth's cash balances relative to its debt levels.

Ratings affirmed:

Wyeth:

Baa1 senior unsecured notes, debentures, bank credit facility, industrial revenue bonds, pollution control bonds

(P)Baa1 senior unsecured shelf rating

Prime-2 commercial paper; VMIG-2 pollution control bonds

Headquartered in Madison, New Jersey, Wyeth (NYSE: WYE) Wyeth is a major pharmaceutical and health care products company engaged in the discovery, development, manufacturing, and marketing of pharmaceuticals, vaccines, biotechnology products, and nonprescription medicines. Wyeth reported net revenues of $17.4 billion in 2004.

New York
Patrick Finnegan
Managing Director
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

New York
Michael Levesque
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

No Related Data.
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