Fitch Ratings has affirmed Abbott Laboratories' (Abbott) ratings as follows:
--Issuer Default Rating at 'AA-';
--Bank loan at 'AA-';
--Senior unsecured debt at 'AA-';
--Commercial paper at 'F1+'.
The ratings have been removed from Rating Watch Negative, originally placed on Nov. 6, 2006. The Rating Outlook is Stable. The affirmation applies to $9.45 billion of unsecured securities and commercial paper.
The rating action follows the company's announcement of an agreement of sell its core diagnostics business to GE for $8.13 billion. Abbott will divest three (of five) of its medical diagnostics businesses, namely the immunochemistry, hematology and point-of-care diagnostics businesses. Abbott's molecular diagnostics and diabetes care (glucose-monitoring) businesses will remain with the company. Fitch believes that some proceeds from the transaction, which is expected to close in the first half of 2007, will be used to reduce leverage that increased from incremental debt used to complete the acquisitions of Guidant Corporation's (Guidant) vascular intervention and endovascular solutions business and Kos Pharmaceuticals (Kos) during 2006. Fitch anticipates the leverage will decrease to historic levels by the end of 2007.
Abbott is still committed to its diversified product portfolio with offerings in human pharmaceuticals, medical devices, and adult and pediatric nutritionals. Although the EBITDA growth will slow in 2007 from the divestiture, Fitch anticipates EBITDA growth and margins to benefit thereafter. Margin expansion has already been supported during 2006 by the company's renegotiation of its co-promotion agreement with Boehringer Ingleheim (BI) for the low-margin Mobic, Flomax and Micardis products. Margins will continue to be pressured from the loss of patent exclusivity of key products, Biaxin-XL and Depakote, in the intermediate term.
The company's diverse research and development program contains internally developed pharmaceuticals, vascular stenting systems, and blood monitoring devices. Potential new product launches, such as drug-coated coronary stents (in the U.S.) and life-cycle management of Humira (most notably for the treatment of moderate to severe psoriasis), support total company sales growth and free cash flow generation improvement through the long-term. The company's R&D portfolio is strengthened through internal development, technology acquisitions and licensing agreements.
Fitch expects Abbott to temper its acquisition strategy in the near-term after an active year in 2006, as the company will be focused on integration of the recently-purchased assets. However, Fitch anticipates that the company will continue to bolster its current portfolio through strategic acquisitions and licensing agreements.
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.
