S&P puts Watson on negative watch

Standard & Poor's said it placed Watson Pharmaceuticals Inc.'s BBB- corporate credit and senior unsecured debt ratings on CreditWatch with negative implications following the announcement that the company intends to buy rival Andrx Corp. for roughly $1.9 billion in cash.

Watson will likely fund the acquisition with a mix of debt and cash on hand, which was $630 million at Dec. 31, and S&P predicted that pro forma debt to EBITDA will be in the range of 2.5x to 3.0x.

S&P said the acquisition, expected to close in the second half of 2006, would make Watson the third-largest generic drug maker in the United States, with revenue of $2.8 billion and a generic drug pipeline with more than 60 Abbreviated New Drug Applications. Watson, which specializes in difficult-to-formulate generic drugs, would also gain Andrx's controlled-release technologies.

Andrx, however, has been on an "Official Action Indicated" status since September from the Food and Drug Administration for manufacturing noncompliance issues. The agency said Andrx is currently in discussions with the FDA on resolving the issues, but the FDA will not approve any new Andrx products until significant progress is made.

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