Fitch Affirms Bristol-Myers Squibb Co.'s 'A+' IDR; Outlook Negative

CHICAGO--(BUSINESS WIRE)--Fitch Ratings has affirmed Bristol-Myers Squibb Co.'s (Bristol-Myers Squibb) ratings as follows:

--Long-term Issuer Default Rating (IDR) at 'A+';
--Senior unsecured debt rating at 'A+';
--Bank loan rating at 'A+';
--Short-term IDR at 'F1';
--Commercial paper rating at 'F1'.

The ratings apply to approximately $6.5 billion of outstanding debt. The Rating Outlook is revised to Negative from Stable.

Bristol-Myers Squibb is currently benefiting from a solid intellectual property position and actions taken over the past few years to streamline the product portfolio towards biopharmaceuticals and consumer medicines. Total revenues for the biopharmaceutical business grew 7.5% to $19.4 billion for the latest 12-month (LTM) period, and 6.5% for the first six months of 2010. Fitch believes this operational strength will improve financial metrics until 2012.

However, Bristol-Myers Squibb will face a period of significant drug patent expiry when the company loses U.S. market exclusivity for two top-selling pharmaceuticals - Plavix and Avapro - in 2012. Sales at-risk of patent expiration over the next three years represent 42.2% of sales for the LTM period ending June 30, 2010, including around one-third of the Sustiva franchise. The company's diversified and promising late-stage R&D portfolio, if commercialized, is not anticipated to fully offset the expected rapid decline in revenues in 2012 and 2013. The Negative Outlook reflects the uncertainty of the credit profile for the subsequent periods to the drug patent lapses, with the largest stress anticipated to occur in 2013.

Cost initiatives have served to expand margins since the programs were first implemented in December 2007. Approximately 90% of the company's targeted annual savings of $2.5 billion by 2012 are anticipated to be achieved this year. EBITDA and EBITDAR margins have increased to 36.2% and 37% for the six-month period ending June 30, 2010 from 22.3% and 23.3% in 2007, also bolstered by a product portfolio now solely focused on higher margin medicines following the spin out of Bristol-Myers Squibb's remaining interest in the Mead Johnson nutritionals business in December 2009. Fitch anticipates margins to hold relatively steady until the patent cliff, at which time Bristol-Myers Squibb is tasked to mitigate the negative effect from decreased revenues through incremental operating cost savings and capital preservation, beyond the restructuring programs previously announced, to protect its credit profile and remain consistent with the current rating category.

Along with margin improvement, leverage as measured by total debt to EBITDA and by total adjusted debt to EBITDAR has fallen to 0.8 times (x) and 0.9x, respectively, from as high as 2.0x and 2.3x, respectively, at the end of 2006 (from generic competition to Pravachol and Plavix). On the flipside, Fitch believes that total debt leverage will rise above 1.3x negatively affected by potential margin compression upon the patent cliff absent further cost improvement. Bristol-Myers Squibb is favored by a long-term debt maturity schedule that does not include significant maturities around the time of the Plavix patent expiration, as only $600 million of senior notes mature in November 2013. Fitch expects moderate business development activities under the company's 'String of Pearls' strategy directed to bolstering the research and development program.

Free cash flow generation has improved annually since 2005, yet remains weak for the rating category. Free cash flow margin rose to 7% for the LTM period ending June 30, 2010. Fitch expects margins to fall around 4% in the intermediate-term benefiting from capital spending constraint, and relatively stable operating cash flow stemming from reduced cash outflows to minority interests and lower pension contributions. Additional liquidity is provided by a $2 billion revolving credit facility expiring in December 2011 and cash and short-term investments of $7.45 billion and long-term investments of $2.8 billion at the end of the second quarter of 2010.

The key rating driver for Bristol-Myers Squibb is its ability to effectively manage through the period of drug patent expirations and maintain solid total debt leverage in the low 1x range. Accordingly, Fitch will monitor the progress of the late-stage R&D pipeline, market demand for Onglyza, business development activities, and operating expense and capital spending reductions in the intermediate-term.

Additional information is available at www.fitchratings.com.

Applicable Criteria and Related Research:
--'Rating Pharmaceutical Companies - Sector Credit Factors' dated July 19, 2010;
--'Corporate Rating Methodology', dated Aug. 16, 2010;
--'Liquidity Considerations for Corporate Issuers' dated June 12, 2007.

Related Research:
Corporate Rating Methodology
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=546646
Rating Pharmaceutical Companies - Sector Credit Factors
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=531669
Liquidity Considerations for Corporate Issuers
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=328666

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