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21 May 2010
Approximately $6.7 Billion of Rated Debt Affected
New York, May 21, 2010 -- Moody's Investors Service revised the rating outlook on Eli Lilly
and Company ("Lilly") to negative from stable. At the
same time, Moody's affirmed Lilly's existing ratings
including the A1 long-term rating and Prime-1 short-term
"Pressure on Lilly's strong credit rating is steadily building,
driven by upcoming patent expirations, high U.S. healthcare
reform costs, and the slow launch of Effient," stated
Michael Levesque, Moody's Senior Vice President.
The revision in Lilly's rating outlook relates primarily to exposure
to upcoming patent expirations, beginning with the upcoming U.S.
patent expiration of Zyprexa in October 2011. Lilly faces exposures
to other significant patent expirations after Zyprexa, creating
the potential for negative earnings growth for several years. Other
factors reflected in the outlook revision include relatively high costs
of healthcare reform in the near term, a disappointing launch of
Effient, and several recent delays in pending drug approvals including
Cymbalta in chronic pain and Bydureon. Further, Lilly faces
a number of unresolved patent challenges on core products including Gemzar,
Cymbalta, and Alimta.
The affirmation of Lilly's A1/Prime-1 ratings reflects its
good scale and market presence in the global pharmaceutical industry,
its strong profit margins, and its steady free cash flow expected
to remain in the $3 billion range through 2011. To date,
financial policies have remained conservative. Lilly's Debt/EBITDA
leverage in recent years was 1.9x, occurring immediately
after the ImClone transaction in 2008. Debt/EBITDA of 1.3x
at March 31, 2010 was well below this level, and other financial
ratios including CFO/Debt and FCF/Debt currently remain in Moody's
"Aa" ranges for pharmaceutical companies.
If Moody's becomes less comfortable about Lilly's ability to maintain
strong credit ratios throughout the patent expiration period, the
rating could be downgraded. Examples of ratios that could prompt
a downgrade include CFO/Debt below the mid-40% range;
FCF/Debt below the mid-20% range; and Debt/EBITDA above
1.75 times. Conversely, revising the outlook back
to stable could be supported by a stronger balance of pipeline quality
and patent exposures, an improved multi-year earnings outlook,
and confidence that strong credit ratios can be sustained even while pursuing
business development activities.
Eli Lilly and Company
Senior unsecured at A1
Prime-1 commercial paper
Moody's most recent rating action on Lilly was assigning a rating
of A1 to new senior unsecured notes on March 3, 2009.
The principal methodology used in rating Eli Lilly was Moody's Global
Pharmaceutical Rating Methodology, published in October 2009 and
available on www.moodys.com in the Rating Methodologies
sub-directory under the Research & Ratings tab. Other
methodologies and factors that may have been considered in the process
of rating this issuer can also be found in the Rating Methodologies sub-directory
on Moody's website.
Headquartered in Indianapolis, Eli Lilly and Company [NYSE:
LLY] is a leading global biopharmaceutical company. In 2009,
Lilly reported net sales of approximately $21.8 billion.
Corporate Finance Group
Moody's Investors Service
Moody's changes Eli Lilly outlook to negative; affirms A1 rating
Senior Vice President
Corporate Finance Group
Moody's Investors Service
No Related Data.
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