Moody's Positive on Wyeth

The firm also raises its outlook on Schering-Plough.
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Moody's Investors Service had some nice things to say about Big Pharma Wednesday, raising its rating for

Wyeth

(WYE)

and lifting its outlook on

Schering-Plough

(SGP)

.

The ratings agency boosted Wyeth's rating to A3 from Baa1, promoting about $9 billion in senior unsecured debt to the category of "upper medium grade" from "medium grade." The outlook is positive.

The decision reflects Wyeth's "solid operating performance driven by continued growth in core products" and low patent-expiration exposure, the firm said. The rating also was raised thanks to a "solid late-stage pipeline" of experimental compounds and "reduced uncertainty" on the cost of resolving the

fen-phen diet drug litigation.

Wyeth might have already had a higher rating except for fen-phen, lawsuits over the hormone-replacement therapy

drugs Prempro and Premarin, and

problems with a manufacturing plant, which are being discussed with the Food and Drug Administration, Moody's said.

If the costs of resolving lawsuits and manufacturing issues fit within the ratings firm's expectations, Moody's says, Wyeth will be upgraded further.

For Schering-Plough, Moody's affirmed a Baa1 rating on $2.4 billion in senior debt while raising the outlook to positive from stable. In May, Moody's raised the outlook to stable from negative.

"Schering-Plough's positive rating outlook reflects strengthening on a number of fronts," said Michael Levesque, Moody's vice president and senior credit officer.

The outlook has brightened thanks to strong performance from several drugs and a better cash-flow-to-debt ratio.

The $435 million settlement in August of a lawsuit over marketing practices, brought by the U.S. Attorney's Office in Massachusetts, also encouraged Moody's. In addition, the company doesn't have a great deal to worry about in terms of patent expirations and patent challenges.

Moody's said it "could upgrade the ratings if the company's turnaround continues along its present path," but it worried that Schering-Plough "may make acquisitions that could increase financial risk." Moody's might downgrade the rating if Schering-Plough makes "a very large cash or debt-financed acquisition in excess of $3 billion to $4 billion."

In midafternoon trading, shares of Wyeth were up 21 cents to $50.74. Schering-Plough was gaining 18 cents to $23.11.