Fitch Ratings Service has put Merck's credit-worthiness on its "Outloook Negative" list -- often a precursor to a credit ratings downgrade. In doing so, it pointed to the Cholesterol Franchise Joint Venture with Schering-Plough, as one major reason for the change. Let's read along, and listen in, from the overnight AP story:
. . . .Merck will have to continue getting good results from its joint ventures and its cost cuts in order to maintain a solid credit profile.
Its most significant joint venture -- a cholesterol drug partnership with Schering-Plough Corp. -- is experiencing weaker sales because test results showed the drug Vytorin was not more effective at reducing
cholesterolthe buildup of fatty plaque in the arteries than generic Zocor alone.
[Editor's Note: AP made the above-corrected copy for this story available today, November 19, 2008 at about 4:42 PM EST.]
Merck is facing legal risks because of the way it marketed the cholesterol drugs, Fitch said. Those risks include allegations it kept the trial data secret to boost sales. . . .
I think this is the first rating agency to actually single-out the specific legal risks posed by the [alleged] delay in disclosing the full ENHANCE results as a solid-reason for negative ratings action, at either Merck or Schering. I think Fitch finally read Senator Grassley's February 2008 letters. Wow.
So -- when will Fitch next review Schering-Plough's various credit-market exposures?
UPDATED @ NOON: I think these are the most-recent (09.30.08) Schering-endorsed disclosures of the various rating agency views, by agency (short-term debt rating/long-term debt rating -- outlook):
Moody’s Investors Service: Baa1/P-2 -- Negative Outlook
Standard and Poor’s: A1/A-2 -- Stable
Fitch Ratings: BBB+/F-2 -- Stable
In each case, these remain (albeit low-end) investment grade ratings -- though in this financial market, that may mean very little -- as borrowing (at decent spreads) is going to be tough, no matter what. During the third quarter of 2008, Fitch took Schering off of "Negative Outlook" -- moving it to "Stable". Well, we'll see about that.