Fitch rates Eli Lilly notes, loan AA

Fitch Ratings said it assigned an AA bank loan rating and an AA rating to Eli Lilly Services, Inc.'s private issuance of $1.5 billion of extendible 13-month floating-rate senior unsecured notes, fully guaranteed by Lilly.

The outlook remains stable.

Simultaneously, Fitch affirmed Eli Lilly and Co.'s AA senior unsecured debt rating and F1+ commercial paper rating.

Fitch said it expects continued growth of newly launched drug products (and commercialization of key late-stage R&D projects) coupled with restructuring actions and productivity initiatives will mitigate margin erosion (occurring since 2001) as well as further reducing revenue concentration from Zyprexa. Lilly commits about 20% of total sales to its R&D program, focused on developing novel therapies in four core areas, neuroscience, endocrine disorders, cancer and cardiovascular diseases.

Fitch said its concerns include the company's modest free cash flow generation since 2002, negatively affected by large dividends and heavy investment in capital.

The credit profile could be negatively affected if patent challenges to Zyprexa and/or Evista are successful. The Zyprexa compound patent challenge may have been weakened by the favorable ruling by the U.S. District Court in Indianapolis in April.

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