No Impact on Lilly's (LLY) Ratings Following Actos Verdict - Fitch

A U.S. jury's combined $9 billion judgment against Japan's Takeda Pharmaceutical partner company Eli Lilly (NYSE: LLY) will not affect LLY's ratings, according to Fitch Ratings. Fitch rates LLY 'A' and the Rating Outlook is Stable.

The U.S. district court in Louisiana this week rendered a $6 billion judgment against Takeda and a $3 billion penalty against LLY stemming from allegations that their Actos diabetes medicine is linked to bladder cancer. LLY co-marketed Actos with Takeda in the U.S. from 1999 until September 2006.

Both companies will legally challenge the verdict and judgment and we note that historically, judgments similar to these are typically reduced on appeal. Under Lilly's agreement with Takeda, Lilly will be indemnified by Takeda for its losses and expenses with respect to the U.S. litigation and other related expenses in accordance with the terms of its indemnification agreement.

With leverage (total debt/EBITDA) of 1.06x for the latest 12-month (LTM) period ended Dec. 31, 2013, Fitch looks for Lilly to operate with debt leverage of 1.1x-1.3x during 2014. Fitch assumes Lilly will maintain adequate liquidity, supported by free cash flow (FCF) generation, balance sheet cash, and availability on its revolving credit facility. At Dec. 31, 2013, the company had approximately $5.4 billion of cash and short-term investments, full availability on its $1.2 billion credit facility that matures April 7, 2015 and roughly $7.6 billion in noncurrent investments. Lilly generated approximately $2.5 billion in FCF during the LTM period.

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