S&P Affirms Pfizer Debt Ratings

The rating agency says the drug giant remains a triple-A credit following its proposal to buy Pharmacia

Following the July 15, 2002, announcement by drug giant Pfizer (PFE ) that it has signed a definitive agreement to acquire its Peapack, N.J.-based industry rival Pharmacia (PHA ), Standard & Poor's affirmed its 'AAA' corporate credit, bank loan, and senior unsecured debt ratings, as well as its 'A-1+' short-term corporate credit and commercial paper ratings for Pfizer. The proposed merger would be an equity-financed transaction valued at $60 billion. The outlook for Pfizer remains stable.

At the same time, the rating agency placed the long-term corporate credit and various debt ratings of Pharmacia and its affiliates, excluding Monsanto Co., on CreditWatch with positive implications. The 'A-1+' short-term corporate credit and commercial paper ratings on Pharmacia have been affirmed. Meanwhile, the single-'A' corporate credit and senior unsecured debt, as well as the 'A-1' short-term corporate credit and commercial paper ratings on Monsanto were also affirmed.

Pfizer also announced that it has expanded its share repurchase program to $16 billion, from the previously announced $10 billion, and plans to complete the program by the end of 2003. The acquisition is expected to close by the end of 2002. Pharmacia plans to complete the spin-off of its 84%-owned agricultural products business, Monsanto, before the close of the acquisition.

The premier ratings on New York City-based Pfizer Inc. reflect the drug maker's well-established position in the worldwide pharmaceutical market, which enables the company to maintain its superior credit profile.

Pfizer has a deep and diverse drug portfolio, which has eight of the world's 30 largest selling pharmaceuticals, more than any other single pharmaceutical company. The proposed acquisition further strengthens that portfolio, as Pharmacia brings several young, growing products, including the leading COX-2 franchise, Celebrex/Bextra; the glaucoma treatment, Xalatan; the urinary incontinence drug, Detrol; and the cancer treatment, Camptosar; as well as expands both Pfizer's therapeutic and geographic coverage.

Pfizer has co-promoted Celebrex with Pharmacia since its launch in 1999, and annual sales of the drug have grown to over $3 billion. Bextra, a second generation, more potent COX-2, was launched by the co-marketing partners earlier in 2002, well ahead of rival Merck's Arcoxia, whose approval application was recently withdrawn. Meanwhile, Pfizer's product portfolio, led by the cholesterol lowering treatment, Lipitor, continues to experience solid sales growth. The combined portfolio is relatively young, with none of Pfizer's major products face patent expiration before 2004, and none of Pharmacia's significant drugs before 2007.

The combined company will also have one of the industry's broadest product development pipelines, with over 120 new chemical entities in various stages of development. With the addition of Pharmacia's pipeline, Pfizer plans to file 20 new products for regulatory approval over the next five years.

Financially, the combined company will generate an estimated $48 billion in revenues in 2002 and be in a significant net cash position. Potential sales of several non-core businesses, such as the confectionery and shaving businesses that came along with the 2000 acquisition of Warner-Lambert, would further strengthen Pfizer's cash position. This strong cash position, in addition to Pfizer's annual funds from operations of nearly $9 billion, and access to Pharmacia's annual cash flows, provides Pfizer with the financial flexibility with which to conduct substantial periodic share repurchases without affecting its ratings.

The corporate credit, senior unsecured, and subordinated debt ratings of Pharmacia will be raised to 'AAA', upon the close of its acquisition by higher-rated Pfizer.

In contrast to several of its major pharmaceutical rivals, who are currently struggling through a period of slower growth due to major patent expirations, Pfizer expects its revenues to grow at double-digit rates through 2004, based on the continued strength of its diverse pharmaceutical portfolio. The acquisition of Pharmacia further diversifies this portfolio. Pfizer's recent successful efforts in efficiently integrating its acquisition of Warner-Lambert gives Standard & Poor's some confidence that Pfizer will not experience significant setbacks in its integration of Pharmacia.

From Standard & Poor's CreditWire

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