OREANDA-NEWS. Fitch Ratings has affirmed Bristol-Myers Squibb Co.'s (Bristol- Myers, Bristol, BMY) Issuer-Default Rating (IDR) at 'A-'. The Rating Outlook is Stable. The ratings apply to approximately $7.0 billion of debt outstanding at Sept. 30, 2015. A full list of the company's ratings follows at the end of this press release.

KEY RATING DRIVERS

The company's 'A-' rating reflects the following:

--Fitch expects Bristol-Myers to operate with leverage generally below 2.1x. Current leverage of 1.7x leaves the company a degree of flexibility to take on debt or weather operational stress.
--Fitch anticipates continued market uptake of newer medicines with longer patent protection and the successful commercialization of key research projects will help offset the negative effects of the 2017 - 2019 patent expirations of Orencia and Reyataz, as well the expiration of commercialization rights to Abilify.
--Bristol continues to make progress in advancing a number of late-stage pipeline candidates, particularly in the area of oncology, which should help to underpin longer-term growth.
--Fitch believes Bristol will use a capital deployment strategy that preserves its credit profile while still investing in growth and returning cash to shareholders.

Some Flexibility Regarding Leverage: Fitch projects that Bristol will operate with gross debt leverage (total debt/EBITDA) around 2.0x during the forecast horizon. Leverage at Sept. 30, 2015 was 1.7x, roughly 0.20x lower than the prior year period. A $262 million reduction in debt and increasing EBITDA during the period helped to drive down leverage. The loss of market exclusivities for Baraclude and Sustiva plus the expiration of European commercialization rights for Abilify in June 2014 and US commercialization rights in April 2015 presented headwinds during the latest-12-month (LTM) period.

Overcoming Top-Line Headwinds: Fitch expects Bristol will generate positive annual revenue growth during 2016 - 2018. The company has a number of growth drivers for the near- and intermediate term that will help to mitigate the roughly 30% of sales at risk to patent expiries through the end of 2018. Fitch forecasts that longer-dated patented products, including Sprycel (leukemia), Opdivo (various cancers) and Eliquis (blood clots) will continue to generate solid growth. Mid- to late-stage pipeline products should also support relatively reliable growth in the intermediate- to longer term.

The negative effect of the expiration of commercial rights for Abilify in the U.S. will likely continue through the first quarter of 2016. While Orencia will lose market exclusivity in Europe (2017), Japan (2018) and U.S. (2019), biosimilar competition will likely take away market share only gradually. The headwinds facing Abilify and Orencia, plus the loss of market exclusivities for Reyataz during 2017-2019 should be manageable for the firm, given the expected strong growth of its products with longer market exclusivities.

Pipeline Progress Continues: Bristol-Myers has made progress with its late-stage pipeline during the past year. The FDA accepted the application for Empliciti (elotuzumab/BMS-901608), in combination with Revlimid and dexamethasone, to treat multiple myeloma on Sept. 1, 2015 and approved it shortly thereafter on Nov. 30, 2015. Daklinza/daclatasvir (hepatitis C) gained FDA approval in July 2015 and continues to generate positive clinical data.

Opdivo/nivolumab received FDA approval for the treatment of unresectable or metastatic melanoma, metastatic non-small cell lung cancer and progression on or after platinum-based chemotherapy and advanced renal cell carcinoma who have received prior antiangiogenic therapy. Bristol is conducting additional clinical studies for more indications as a standalone therapy and in combination with other therapeutics to treat various cancers.

Financial Performance to Rebound: Fitch expects steady improvements in operations will drive stronger financial performance during the intermediate term. Products recently launched and to-be launched and a less-onerous intermediate-term patent expiry schedule should bolster margins as they gain traction, driving strong and increasing operational cash flow. FCF in the very near term, however, will likely be somewhat soft.

A negative swing in working capital during 2015, attributable to the timing of payments to alliance partners of Abilify and rebates to Medicaid have pressured CFO and FCF. In addition, 2015 and 2016 capital expenditures will be nearly double previous years as the company expands its biologic manufacturing capabilities. FCF in the LTM period ended Sept. 30, 2015 was a negative $1.4 billion, compared to a positive $1.1 billion in the prior year's LTM period.

Responsible Cash Deployment Expected: Fitch expects that Bristol will remain responsible in deploying cash, although we do model a slightly more aggressive posture in the near- to intermediate term. Increasing investments in growth and shareholder friendly actions will likely accompany the company's expected improved operational/financial performance. Bristol has deployed cash in a relatively conservative manner throughout 2015, while it continued to support its dividend. However, the company suspended share repurchases during the nine months ended Sept. 30, 2015.

KEY ASSUMPTIONS

Fitch's key assumptions within our rating case for the issuer include:
--Mid-single digit revenue growth during 2016 and incrementally accelerating through 2018, as newer products more than offset the negative effect of patent expiries.
--EBITDA margin gradually increasing to 32% - 34% during the forecast period, as mix improves with newer product growth and ongoing efforts to rein in costs yield savings.
--Annual FCF (cash flow from operations minus capital expenditures minus dividends) turning positive in 2017 to roughly $700 million to $1.1 billion and increasing in 2018.
--Leverage remaining below 2.1x during forecast period.

RATING SENSITIVITIES

Positive: Future developments that may individually or collectively, lead to such an action include:

Fitch would consider a positive rating action if it believes gross debt leverage will be maintained below 1.7x and FCF will remain positive through the forecast period. Drivers of operational improvement that would support a positive revision include strong demand for new therapeutics as well as continued strength in growth drivers, including Eliquis and Opdivo.

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

Ratings pressure would result if the company is not successful in mitigating the negative effects in 2016 - 2018 from the ending of the commercialization agreement for Abilify and the patent expiries of Reyataz and Orencia (to a lesser extent). A negative ratings outlook or a one-notch downgrade could follow a sustained increase in total debt leverage is greater than 2.1x together with prolonged negative FCF resulting from margin compression and incremental borrowings.

LIQUIDITY

Fitch sees Bristol-Myers Squibb maintaining adequate liquidity with cash balances, revolver availability and anticipated positive free cash flow (beginning in 2017). At Sep. 30, 2015, the company had full capacity under $3.0 billion in five-year revolving credit facilities comprising $1.5 billion expiring in October 2019 and $1.5 billion expiring in July 2020. The revolvers contain no financial covenants. Bristol-Myers Squibb also had cash and short-term investments of $7.4 billion and long-dated securities of $4.6 billion. Approximately $930 million of cash, cash equivalents and marketable securities resides domestically. Upcoming significant debt maturities are the $750 million notes in 2017. Fitch expects Bristol will refinance maturities with debt issuances or commercial paper borrowings.

FULL LIST OF RATING ACTIONS

Fitch affirms Bristol-Myers Squibb's ratings as follows:

--IDR at 'A-'; Stable Outlook;
--Senior unsecured debt at 'A-';
--Bank loan at 'A-';
--Short-term IDR at 'F2';
--Commercial paper at 'F2'.