CHICAGO - (Business Wire) Fitch Ratings has affirmed the long- and short-term Issuer Default Ratings (IDRs) and outstanding debt ratings of Allergan, Inc. (Allergan) as follows:
--Long-term IDR 'A-';
--Senior unsecured debt 'A-';
--Bank loan 'A-';
--Short-term IDR 'F2';
--Commercial paper 'F2'.
The ratings apply to approximately $1.63 billion of outstanding debt. Fitch has also revised Allergan's Rating Outlook to Positive from Stable.
Allergan's strong operational performance in 2007 alleviated Fitch's main concern of sustained high leverage after the acquisition of Inamed Corp. in March 2006. Leverage, total debt-to-EBITDA, decreased to 1.5 times (x) at the end of 2007 from 2.1x at the end of 2006. Allergan realized full benefits during the year of the acquisition after market introductions of key Inamed R&D projects, specifically silicone breast implants, Natrelle, in November 2006 and the next generation dermal fillers, the Juvederm franchise, beginning in January 2007. Fitch anticipates that sustained operational successes may ease leverage in the intermediate-term leading to the Rating Outlook revision to Positive. There are no material debt maturities until 2016.
In 2007, overall revenue growth was 28.6% driven by strong growth of eye care product and Botox as well as rapid uptake of new medical devices. The medical device portfolio afforded reduced reliance on revenues generated by the Botox and eye care franchises, Alphagan and Lumigan. During 2007, revenue concentration with Botox had eased to 30.9% of total revenues from 35.8% in 2005 (the year prior to the Inamed acquisition); Lumigan decreased to 9.9% of sales from 11.5%; and the Alphagan franchise dropped to 8.7% of revenues from 12%.
Fitch recognizes that Allergan may face demand pressure for its aesthetic products in light of an economic slowdown, particularly in the U.S. Approximately 30% of worldwide revenues are cash sales related to these elective procedures, with the U.S. portion representing approximately 18% of total sales. However, Fitch believes that overall revenue growth may parallel pharmaceutical market growth in the intermediate-term, despite a potential slowdown of sales of breast and facial aesthetics products and Botox Cosmetic in that period, supported by solid growth of Allergan's therapeutic product portfolio.
Additionally, EBITDA margin expanded to 28.3% in 2007 from 26.8% in 2006 from a favorable product mix and cost initiatives. Fitch anticipates continued EBITDA margin improvement in the intermediate-term including increased investments on the R&D program and incremental promotional costs necessary for the potential commercialization of the late-stage R&D pipeline, most importantly Botox for migraines and Posurdex for retinal disease.
Allergan maintains solid liquidity through its untapped $800 million credit facility maturing May 2012, which backs up a $600 million commercial paper program. Additionally, free cash flow has increased significantly since the Inamed purchase as demonstrated by free cash flow rising to $559.2 million in 2007 from $293.8 million in 2005. Fitch anticipates sustained strong free cash flow generation exceeding $500 million annually through the long term.
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)
Brian Bertsch, +1-212-908-0549
(Media Relations, New York)
