Pfizer's (PFE) Ratings Affirmed by Fitch

Fitch Ratings has affirmed Pfizer Inc.'s (NYSE: PFE)(Pfizer's) ratings, including the 'A+' Issuer Default Rating (IDR). The rating actions apply to approximately $37.8 billion of consolidated debt outstanding as of June 29, 2014. The Rating Outlook is Stable. A full list of ratings follows at the end of this press release.

KEY RATING DRIVERS

--Fitch forecasts that Pfizer will operate with total debt leverage ranging between 1.5x and 1.7x, driven by relatively flat profitability and debt levels, leaving the company little flexibility at its current 'A+' rating.

--Fitch believes Pfizer will continue to aggressively deploy cash towards acquisitions, share repurchases and an increasing dividend.

--The company's patent cliff is generally manageable with roughly 16% of branded revenues exposed to patent expiration in the next three years. One of its at-risk products, Enbrel, is a biologic that Fitch expects will lose far less market share to generic competition than what typically occurs with small molecules.

--Pfizer is making headway in shepherding a number of projects through its pipeline. Notable progress has been made in advancing treatments for symptoms of menopause and cancer and also for vaccines to prevent of neisseria meningitidis and clostridium difficile infections.

--Fitch expects Pfizer will face incrementally declining organic revenues through 2016. Fitch's expectation incorporates the anticipated performance of Pfizer's mature, new and pipeline products, while factoring in patent expiries, moderate macroeconomic headwinds and the beneficial effect of the Affordable Care Act (ACA).

--Pfizer will likely continue with narrowing its strategic focus on human branded pharmaceuticals. Its efforts should improve long-term profitability and growth, mitigating the negative effect of a less-diversified business model.

--Fitch anticipates Pfizer will generate strong free cash flow (FCF) and maintain solid liquidity during the intermediate term, with significant cash balances and adequate access to the credit markets.

LEVERAGE LEAVES LITTLE FLEXIBILITY
Pfizer's current leverage (total debt/EBITDA) at June 29, 2014 of 1.72x, leaves the company little flexibility at its current 'A+' rating. Fitch anticipates that Pfizer will operate with total debt leverage ranging between 1.5x and 1.7x, driven by relatively flat profitability and debt levels. FCF and cash on hand should be sufficient to fund targeted acquisitions and share repurchases without requiring additional debt. Fitch's rating for Pfizer does not incorporate any large transformative acquisitions.

AGGRESSIVE CASH DEPLOYMENT TO PERSIST
Fitch believes Pfizer will continue to aggressively deploy cash towards acquisitions and (to a lesser degree) share repurchases. The relative intensity between the two options will likely be driven by available targets and the relative returns to shareholders. In addition, Fitch expects that Pfizer will remain committed to an increasing dividend over time.

In May 2014, Pfizer decided to abandon its attempt to acquire AstraZeneca (AZN) for roughly $119 billion. Pfizer's proposed acquisition was based on strategic portfolio opportunities and a more favorable tax status, particularly regarding the repatriation of future foreign earnings to the U.S. The company continues to demonstrate its willingness to pursue large strategic transactions, demonstrated by its recent pursuit of AZN and completed acquisitions of Warner-Lambert, Pharmacia and Wyeth.

MANAGABLE PATENT EXPIRIES
The company's intermediate-term patent cliff is manageable. Over the next three years, roughly 16% of the company's drug portfolio is at-risk of losing market exclusivity, including two of its five best-selling medicines - Celebrex (approximately 6% of total firm sales) and Enbrel (approximately 8% of total firm sales). Generic competition in the U.S. for Celebrex is expected as early as December 2014, and the base patent for Enbrel expires internationally beginning in 2014. Pfizer does not have rights to Enbrel in the U.S. and Canada, but does receive modest royalty income from Amgen for sales in those regions.

Fitch does not expect that Enbrel will face as serious a competitive threat from generic alternatives as will Celebrex. Enbrel is a biologic, and a generic biologic that is automatically interchangeable with Enbrel will not likely emerge. Therefore, Fitch expects competitive challengers will require significant research and marketing investments, making steep price discounts and drastic market share gains by competitors less likely.

PIPELINE SUCCESSES
Helping to mitigate the anticipated revenue challenges from patent expiries, Pfizer has added new revenue sources over the past two years, including Duavee (vasomotor symptoms of menopause), Prevnar 13 (pneumococcal vaccine expanded use), Xeljanz (arthritis) and Bosulif (cancer).

The company is making progress with late-stage pipeline candidates, such as tafamidis (polyneuropathy), bivalent rLP2086 (Neisseria meningitidis vaccine), PF-06425090 (Clostridium difficile vaccine) and palbociclib (breast cancer). In addition, Pfizer is conducting clinical trials that could expand the market of currently marketed products by garnering regulatory approvals for their broader clinical use.

NARROWING STRATEGIC FOCUS
Fitch anticipates that Pfizer will continue to sharpen its strategic focus on human branded pharmaceuticals. While decreasing the diversity of its product portfolio, an increased focus will enable the company to improve the productivity of its core operations, including research & development, marketing and manufacturing. Fitch believes the company's Global Established Pharmaceuticals business and its Consumer Health business are possible divestment candidates.

EXPECTED SOFT ORGANIC REVENUES
Fitch expects the net effect of patent-protected product sales, lost share due to products with near-term patent expirations and the ramp up of recently introduced products will result in slightly declining organic revenues through 2016. Fitch's revenue forecast assumes moderate uptake of recently launched products, Celebrex's loss of market exclusivity in December 2014, Enbrel's loss of European market exclusivity in 2014, and Lyrica's loss of market exclusivity in Europe in 2013. In addition, the persistence of weak macroeconomic trends presents a headwind, while somewhat offset by a modest tailwind from the expected increase in the rolls of the insured in 2014-2016 from the Affordable Care Act.

STRONG CASH FLOW EXPECTED
Fitch forecasts $6 billion to $7 billion of free cash flow (cash flow from operations minus capital expenditures and dividends) for Pfizer in 2014. The forecast incorporates relatively durable margins supported by a stable sales mix and a strong focus on cost control. In addition, aggregate pricing across the company's product portfolio is expected to be supportive for margins in the near term.

SOLID LIQUIDITY
Fitch looks for Pfizer to maintain solid liquidity through strong FCF generation and ample access to the credit markets. FCF for the LTM ending June 29, 2014 was $11 billion. At the end of the period, Pfizer had approximately $34.1 billion in cash/short-term investments and full availability on its $7 billion revolver, maturing in October 2018.

Fitch views Pfizer's debt maturity schedule as manageable and expects the company to refinance the vast majority of its upcoming maturities with additional borrowings. Pfizer has approximately $3 billion of long-term debt maturing in 2015, $4.3 billion in 2016 and $4 billion in 2017.

RATING SENSITIVITIES
Positive: While Fitch does not anticipate a positive rating action in the near term, future developments that may individually or collectively, lead to such an action include:

--If Pfizer maintains gross debt leverage in the range of 1.0x to 1.3x;
--If the company sustains strong operational performance through the current patent cliff period, including relatively stable to positive trends in revenues, margins and FCF

Negative: Future developments that may, individually or collectively, lead to a negative rating action include:

--If pressure on operations is significant enough to result in sustained gross debt leverage greater than 1.7x as a possible result of marketplace pressures, adverse actions from regulatory bodies or unfavorable clinical developments;
--If Pfizer pursues a transaction (acquisitions/share repurchases) that places pressure on gross leverage without the expectation of delveraging in a timely manner.

DEBT ISSUE RATINGS

Fitch has affirmed Pfizer Inc.'s ratings as follows:

--IDR at 'A+';
--Short-term IDR at 'F1'.
--Commercial paper program at 'F1';
--Credit facility at 'A+';
--Senior unsecured notes at 'A+'.

The ratings apply to roughly $30.9 billion of debt (excluding subsidiary debt) outstanding at June 29, 2014. The Rating Outlook is Stable.

Fitch has also affirmed the ratings of Pfizer's consolidated subsidiaries as follows:

Wyeth LLC
--IDR at 'A+';
--Senior unsecured notes at 'A+'.

The ratings apply to roughly $5.5 billion of subsidiary debt outstanding at June 29, 2014. The Rating Outlook is Stable.

Pharmacia Corp.
--IDR at 'A+';
--Senior unsecured notes at 'A+'.

The ratings apply to roughly $1.4 billion of subsidiary debt outstanding at June 29, 2014. The Rating Outlook is Stable.

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