Fitch Revises Wyeth's Ratings Outlook to Stable from Negative.

CHICAGO -- Fitch Ratings has revised Wyeth's Rating Outlook to Stable from Negative. At the same time, Fitch affirms the 'A-' Issuer Default Rating (IDR) and senior unsecured credit ratings and 'F2' commercial paper rating, and assigned an 'A-' bank loan rating. The ratings apply to $9.11 billion of short- and long-term debt.

The revision in Outlook to Stable is prompted by more certainty of the final costs related to diet-drug litigation given the likely final court approval of the Seventh Amendment to the National Settlement and the resolution of approximately one-third of all downstream opt-outs by May 2, 2006. Fitch believes that Wyeth's remaining diet-drug litigation reserves of $5.25 billion (of a total of $21.1 billion) as of March 31, 2006 is sufficient to satisfy the vast majority of current claims. Fitch still assumes additional reserves to be charged to future earnings but not at the level of previous charges. Diet-drug settlement payments beyond 2006 are expected to be manageable given improving cash flow generation.

Overshadowed by diet-drug litigation headline risk has been Wyeth's strong operational improvement led by greater-than-market revenue growth of its human pharmaceutical business coupled with stable sales growth of its animal health and consumer health businesses. Key product growth drivers include four 'blockbuster' human pharmaceuticals and a $1 billion infant nutritional product line, all exhibiting sustained revenue growth. Overall revenue growth of 6.1% for the latest 12-month (LTM) period at the end of the first quarter of 2006 benefited from strong growth of the human pharmaceutical business offset by dampened growth of the consumer health division, which was negatively affected by the divestiture of the Solgar vitamin line in the third quarter of 2005.

Supporting continued sales growth is the company's active R&D program and solid intellectual property position. Wyeth's R&D program is slated to introduce more than five new drugs in the intermediate term after having launched a new antibiotic, Tygacil, in July 2005. The only notable potential U.S. market exclusivity loss in the present decade occurs in June 2008 when the composition-of-matter patent for venlafaxine hydrochloride, the active ingredient of Effexor/Effexor XR, expires. An agreement to resolve a legal challenge from Teva seeking to invalidate the patent for the extended-release formulation of Effexor (representing greater than 95% of all Effexor franchise U.S. sales) has been created and court approved. Through this agreement, Teva will not market a generic version of Effexor XR until July 2010.

Free cash flow generation since 2000 has been hampered by greater than $17 billion of operating cash used to fund diet-drug litigation settlements including security and trust payments. Free cash flow has been hovering around breakeven since 2003 despite total cash outflows of $4.17 billion associated with diet-drug litigation during that time. Free cash flow for the latest 12-month period ending March 31, 2006 was $772.8 million (net cash from operating activities of $3.16 billion less capital spending of $1.09 billion and dividends of $1.29 billion), highest since the advent of diet-drug litigation. Fitch believes that the company will generate a deficit of free cash flow through 2007, the extent of which will be determined by cash outflows for diet-drug litigation. However, substantial improvement in free cash flow is anticipated as the diet drug litigation winds down through the intermediate term.

Leverage (total debt to EBITDA) held relatively steady at 1.7 times (x) for the LTM period ending March 31, 2006, compared to 1.8x at the end of 2005. The company has a light long-term debt maturity schedule without a significant maturity until March of 2011 ($1.5 billion). Wyeth had net debt of $1.2 billion, net of $7.91 billion of cash and marketable securities at the end of the first quarter of 2006.

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