S&P cuts ICN Pharmaceuticals ratings
Thursday July 17, 4:45 pm ET
(The following statement was released by the rating agency)
NEW YORK, July 17 - Standard & Poor's Ratings Services said today that it lowered its corporate credit rating on ICN Pharmaceuticals Inc. (NYSE:ICN - News) to 'BB-' from 'BB'. At the same time, Standard & Poor's lowered the subordinated debt rating on ICN's 6.5% convertible notes due July 15, 2008, to 'B' from 'B+'. The outlook remains negative.
The action is in response to a recent court ruling that may allow three generic drug manufacturers to begin selling a generic version of Ribapharm's antiviral ribavirin. ICN currently owns 80% of Ribapharm, and ribavirin sales account for 37% of ICN's annual revenues.
"The speculative grade ratings on Costa Mesa, Calif.-based specialty pharmaceutical company ICN reflects the weakening of the company's important ribavirin-related royalty stream, uncertainty surrounding the company's ongoing restructuring plan, and the likelihood of a more aggressive financial policy as it seeks to meaningfully broaden its product portfolio," said Standard & Poor's credit analyst Arthur Wong. "On the other hand, the company continues to maintain a strong position in the hepatitis C treatment market and has only minimal debt maturities over the next five years."
Though ICN manufactures and distributes a wide range of pharmaceutical products, Ribavirin provides its most important source of revenue and cash flow. The oral version of the drug, Rebetol, is licensed to Schering-Plough Corp. for sale in combination with Schering-Plough's PEG-Intron/Intron A for the treatment of hepatitis C.
However, PEG-Intron/Rebetol has been experiencing significant competition from a new rival hepatitis C treatment, Roche's Pegasys/Copegus. Roche is aggressively pricing its treatment and is estimated to have already captured 30% of the market. (Previously, PEG-Intron/Rebetol owned nearly 100% of the market.) Lower PEG-Intron/Rebetol sales translate into a lower ribavirin royalty stream for ICN. (ICN collects a royalty on Copegus sales as well, as Copegus is essentially a branded version of ribavirin, however, Standard & Poor's believes that the royalty rate is lower.)
With the possibility of generic competition by the end of 2003, the falloff in ribavirin related royalties could accelerate.
Given the uncertainty relating to the ribavirin royalties, ICN is likely to re-evaluate its current $168 million tender offer for the 20% of Ribapharm that it doesn't own. Sold in a partial initial offering during 2002, Ribapharm holds the rights to ribavirin, as well as the rights to ICN's internal drug development pipeline.
<snip> |
