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Rating Action:

MOODY'S CONFIRMS JOHNSON & JOHNSON'S RATINGS (SR. AT Aaa)

12 Feb 2003
MOODY'S CONFIRMS JOHNSON & JOHNSON'S RATINGS (SR. AT Aaa)

Approximately $4.5 Billion of Rated Securities Affected

New York, February 12, 2003 -- Moody's Investors Service confirmed the long and short term debt ratings of Johnson & Johnson with a stable rating outlook, following the announcement that it plans to acquire Scios Inc. for $2.4 billion in cash.

Ratings confirmed:

Aaa issuer rating, debentures, senior unsecured bonds, medium term notes, revolving credit facility

Aa1 subordinated notes and ALZA convertibles

Prime-1 commercial paper

The rating outlook is stable.

The confirmation of Johnson & Johnson's ratings reflects Moody's opinion that the company's balance sheet can sustain a cash-financed acquisition of this magnitude. As of September 30th, 2002, the company reported cash balances of $3.2 billion and short term marketable securities of $4.1 billion, compared to $3.8 billion of cash and $4.2 billion of short term marketable securities as of December 31, 2001. The September 30, 2002 figures are after Johnson & Johnson completed a $5 billion share repurchase program in 2002, and attest to the strength of the company's healthy free cash flow generation. Moody's notes that a portion of Johnson & Johnson's cash and investments are located overseas, and may therefore be subject to tax payments if repatriated to the United States. Johnson & Johnson reported gross debt of $4.5 billion as of September 30, 2002. Overall, we believe that the balance sheet is very healthy, and can support the $2.4 billion Scios acquisition without a material reduction in financial flexibility.

Moody's believes that the Scios transaction provides several opportunities for Johnson & Johnson. The company should be able to leverage its name and its marketing skills to drive the sales of Natrecor, Scios's intravenous product for congestive heart failure approved in late 2001. We believe that Natrecor will complement ReoPro and Retavase, the cardiovascular products developed by Johnson & Johnson's Centocor unit. In addition, the Scios acquisition provides Johnson & Johnson with an early stage pipeline, including several small molecule candidates for rheumatoid arthritis and other autoimmune disorders. Moody's notes the success that Johnson & Johnson has achieved in integrating past acquisitions, including Centocor and ALZA. However, notwithstanding these opportunities, Moody's believes that the acquisition may be fully-priced, given the current revenue and cash flow generation of Scios. Although Natrecor and the pipeline candidates may provide high potential, there exists no certainty that Natrecor sales will increase as quickly or by as much as Johnson & Johnson expects; equally, there is no assurance that the pipeline will be successful, given the risks inherent in clinical development. The Scios transaction is expected to close in the second quarter of 2003.

Johnson & Johnson's Aaa ratings continue to be supported by its position as one of the world's leading healthcare companies revenue, its revenue and earnings diversity across its pharmaceutical, medical device, and consumer products divisions, and by its excellent cash flow generating capabilities. Over the near term, Moody's believes that the company's Cypher drug-eluting stent presents significant commercial opportunity. Offsetting these strengths, Moody's believes Johnson & Johnson's pharmaceutical pipeline contains relatively few new chemical entities, consisting rather of line extensions on existing products. In addition, several key products face increasing competitive pressures; namely, Procrit (from Amgen's Aranesp in the oncology market), Risperdal (from Bristol-Myers Squibb's Abilify), and Remicade (from Abbott's Humira and Amgen's capacity expansion for Enbrel).

The stable outlook reflects Moody's expectation that Johnson & Johnson's conservative financial policies have not significantly changed. Moody's believes that the $5 billion share repurchase program in 2002 was opportunistic in nature, and that the company has returned to a pace of share repurchases consistent with prior years. In addition, the stable outlook does not anticipate large additional cash-financed acquisitions in the near term. Over time, the stable rating outlook could change depending on the extent of the competitive pressures noted above, or if the company's financial policies become more aggressive.

Headquartered in New Brunswick, New Jersey, Johnson & Johnson is one of the world's largest healthcare companies, with $36 billion in 2002 revenues.

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

New York
Michael Levesque
Asst Vice President - Analyst
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

No Related Data.
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