2008-10-07 02:42:00 -
- Fitch Ratings has placed Eli Lilly and Co.'s (Eli Lilly) Issuer Default Rating (IDR) and outstanding debt ratings on Rating Watch Negative as follows:
-- IDR 'AA';
-- Bank loan 'AA';
-- Senior unsecured debt 'AA';
-- Short-term IDR 'F1+'.
The ratings apply to approximately $4.61 billion of outstanding debt.
The rating action
follows Eli Lilly's announcement of a definitive merger agreement for ImClone Systems Inc. (ImClone) for $70 per share or approximately $6.5 billion in cash. The agreement has received approval from the board of directors of both companies. Full shareholder approval awaits a formal tender offer currently being arranged.
Currently, ImClone has only one commercialized pharmaceutical, Erbitux, licensed by Bristol Myers Squibb Inc. in the U.S. and Canada, and Merck KGaA outside the U.S. for the treatment of advanced colorectal and refractory head and neck cancers. The most advanced project in ImClone's R&D portfolio, IMC-1121B, is under investigation for breast cancer in Phase III clinical studies. Additionally, three more cancer treatments may enter late-stage clinical trials next year.
Fitch recognizes the potential acquisition as a means to address Eli Lilly's period of key drug patent losses after the end of the decade. However, leverage will increase from $2 billion to $3 billion of incremental debt needed to consummate the transaction coupled with the modest EBITDA acquired. Leverage will become more sensitive during the patent cliff period to Eli Lilly's proactive attempts to reduce operating costs, sustained market demand for the human drug portfolio, and successful commercialization of late-stage R&D projects, notably prasugrel.
Eli Lilly had $5.2 billion in cash and short-term securities, $1.1 billion of long-term investments as well as $1.25 billion in unused committed bank lines of credit at the end of the second quarter. Eli Lilly recently obtained an additional $4 billion of committed financing prior to announcement of the acquisition. Eli Lilly currently has only $500 million of debt coming due in the midst of the patent cliff.
Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.
Fitch Ratings
Michael Zbinovec, +1-312-368-3164 (Chicago)
Bob Kirby, +1-312-368-3147 (Chicago)
Cindy Stoller, +1-212-908-0526
(Media Relations, New York)
