Bextra recall leaves Pfizer credit rating intact for the time being

After Vioxx recall, it has simply been downhill for Merck. Not only has it been a target of numerous Vioxx recall related class action lawsuits, its credit rating has suffered. Apparently that is not the case for Pfizer. After Bextra recall and addition of a black-box warning on Celebrex, Fitch Ratings notes that the 'AAA' rating and stable outlook of Pfizer will not be affected.

Celebrex accounted for $3.3 billion in revenue (6.3% of total Pfizer sales), and Bextra accounted for $1.2 billion in revenue (2.4% of sales) in 2004. Pfizer generated $52.5 billion in total revenues in 2004. The withdrawal of Bextra will have an immediate impact on Pfizer sales; however, the degree to which Celebrex sales are affected is difficult to ascertain, considering the FDA is requiring similar warnings on drugs (including over-the-counter pain medications) that compete with Celebrex. Fitch anticipates that Celebrex (whose patent expires in 2013) sales will be negatively affected but the product will continue to generate between $1.5 billion to $2.5 billion in sales in 2005 and that sales growth is likely to rebound in 2006.

Finally, Fitch notes Pfizer's 'AAA' rating is further supported by the company's still superior liquidity, cash flow, and modest debt burden. Despite the loss of cash flow related to the Cox-2 drugs and pending patent expirations, Fitch anticipates that Pfizer will still continue to generate free cash flow (net cash flow from operating activities less capital expenditures and dividends) in excess of $5 billion. Furthermore, Pfizer has nearly $20 billion of cash on its balance sheet and has announced its board has approved a $29 billion repatriation plan under the Homeland Investors Act.

Additionally, a recently announced $4 billion restructuring plan should serve to support margins during the next several years while the company faces patent expirations, flat growth expectations for 2005, and industry-related challenges such as the pending Medicare drug bill.
While Pfizer is also a target of lawsuits related to Celebrex and Bextra, the number was much smaller than those for Vioxx personal injury lawsuits. With the announcement regarding recall of Bextra, though, it is expected that Pfizer's Bextra liabilities may skyrocket, exposing the company to same risks as Merck. That could lower its credit rating later.

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Source: Fitch Ratings