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18 May 2006
MOODY'S REVISES WYETH'S RATING OUTLOOK TO POSITIVE FROM DEVELOPING; AFFIRMS RATINGS (Baa1/Prime-2)
Approximately $9 Billion of Rated Debt Affected
New York, May 18, 2006 -- Moody's Investors Service revised Wyeth's rating outlook to
positive from developing. At the same time, Moody's
affirmed the ratings of Wyeth, including the Baa1 long term senior
unsecured debt rating and the Prime-2 short term debt rating.
The outlook revision to positive reflects Wyeth's progress in resolving
diet drug exposures, good trends for core products, and the
settlement with Teva Pharmaceutical Industries Ltd. earlier this
year related to Effexor and Effexor XR patents.
Wyeth's Baa1 rating is several notches lower than the "A1"
rating indicated by Moody's Global Pharmaceutical Rating Methodology
based on equal-weighting of the 15 sub-factors. Wyeth
scores favorably on factors related to size and scale, patent exposures,
and cash coverage of debt (generally all mapping to the "Aa"
category). Wyeth scores somewhat lower on free cash flow relative
to debt ("Baa"), Moody's assessment of Wyeth's
late stage pipeline ("Baa"), and debt to capital ("Ba").
Although one of the sub-factors in our methodology assesses litigation
exposure, we believe that Wyeth's litigation risks have warranted
additional weighting in the actual credit rating because of the following
risks: (1) negative free cash flow over a prolonged, multi-year
period when diet drug litigation payments are considered; (2) uncertainty
as to whether the diet drug charges taken to date are adequate,
based on the number of times in the past that Wyeth has increased the
reserve; (3) with a number of ongoing trials in different parts of
the country, the possibility of very large jury awards; and
(4) potential bond posting requirements associated with appealing these
According to Moody's Senior Credit Officer, Michael Levesque,
"Moody's views very favorably the recent progress made by
Wyeth in helping to resolve its diet drug exposures, encompassing
both downstream opt outs as well as the pending Seventh Amendment to the
National Settlement Trust." The number of downstream opt
out cases with pending lawsuits against Wyeth has declined that is attributable
to ongoing court proceedings (which Moody's views on balance as
favoring Wyeth), and a renewed emphasis on settling cases out of
court. The number of lawsuits associated with downstream opt outs
peaked at approximately 63,000 in 2004; as of March 1,
2006 Wyeth reported that 41,000 of these cases remained, and
that as of May 2, 2006 the company had reached agreements or agreements
in principle to settle approximately 90% of the downstream opt
Moody's expects final judicial approval of the proposed Seventh
Amendment over the near term. This amendment provides for Wyeth
to fund a new Supplemental Fund of $1.275 billion,
which we expect would cover approximately 95% of the eligible individuals
who have filed for benefit payments from the Settlement Trust.
According to Levesque, "An upgrade could occur over the next
several months or quarters if: (1) Wyeth significantly reduces the
number of downstream opt out cases without incurring additional debt or
increasing its diet drug reserves; and (2) good operating results
Although not expected in the near term, a new diet drug reserve
charge of significance (e.g. $5 billion) could result
in a negative outlook or a ratings downgrade. Other events that
could create rating pressure, but are unexpected currently include:
(1) the loss of the Protonix patent; (2) a major decline in Effexor
sales; (3) a rapid increase in the number of HRT-related lawsuits;
or (4) if recent challenges to the original nationwide diet drug settlement
For additional information, please see Moody's updated Credit
Opinion on Wyeth available on www.moodys.com.
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
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 approximately
$19 billion in 2005.
Corporate Finance Group
Moody's Investors Service
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service
No Related Data.
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