S&P assigns Cephalon Inc ratings
Tuesday June 10, 10:46 am ET
(The following statement was released by the ratings agency)
NEW YORK, June 10 - Standard & Poor's Ratings Services said today that it assigned its 'B+' corporate credit rating to the emerging specialty pharmaceutical company Cephalon Inc.
At the same time Standard & Poor's assigned its 'B-' subordinated debt rating to Cephalon's existing $600 million 21/2% convertible subordinated notes due 2006. It also assigned a 'B-' rating to Cephalon's proposed subordinated issues. These include $300 million in zero coupon convertible subordinated notes due 2033 (putable in June 2008) and another $300 million also due 2033 (but putable in June 2010).
The outlook is positive. Following the transaction, Cephalon will have approximately $1.3 billion of debt.
Cephalon plans to use the proceeds from the proposed convertible issues mainly to refinance its existing 51/4% convertible notes due 2006, as well as to finance acquisitions. The company may also be stockpiling cash in anticipation of increased marketing support for one of its products, Provigil, a drug related to sleep disorders that Cephalon is currently hoping to market for uses beyond those currently indicated by the FDA.
"The speculative-grade ratings on West Chester, Pa.-based Cephalon reflect the company's aggressive growth strategy and leveraged financial profile, factors mitigated by the growing cash flows from the company's two main pharmaceutical products, Provigil, as well as Actiq," said Standard & Poor's credit analyst Arthur Wong.
Provigil, which has been approved to treat excessive daytime sleepiness associated with narcolepsy, is expected to have sales in the $120 million area for the six months ending June 2003, up from roughly 30% for the same period the previous year. The drug accounts for roughly 40% of the company's total revenues. Despite its FDA-approved indication, however, much of Provigil's growth can be attributed to "off label" uses. These include treatment for sleepiness associated with disorders such as depression and Attention Deficit Hyperactivity Disorder (ADHD). So that it can market Provigil for these diseases, Cephalon is pursuing supplemental new drug applications (sNDA). If the company is successful, product sales may reach $500 million by year-end 2005.
There is some concern, however, regarding Cephalon's patent position on Provigil. A number of generic companies have filed abbreviated new drug applications (ANDA), and, if successful at contesting Cephalon's patent, they may be able to enter the market with generic Provigil by mid-2006.
Actiq, which has been approved for breakthrough cancer pain, is expected to have sales in the $100 million area for the six months ending June 2003, up more than 100% from the same period the previous year. Although Actiq accounts for only about 30% of the company's total revenues, the cancer market is relatively under-penetrated, and the drug will continue to be an important contributor to growth in the company's cash flows.
Cephalon has experienced substantial revenue growth during the past three years. The company is expected to continue to be aggressive, acquiring products and businesses with cash raised through its convertible debt offerings. Complete ratings information is available to subscribers of RatingsDirect, Standard & Poor's Web-based credit analysis system, at www.ratingsdirect.com. All ratings affected by this rating action can be found on Standard & Poor's public Web site at www.standardandpoors.com; under Fixed Income in the left navigation bar, select Credit Ratings Actions. |
