S&P: aaiPharma on negative watch

Standard & Poor's said it placed its B+ corporate credit, BB- senior secured, and B- subordinated debt ratings on aaiPharma Inc. on CreditWatch with negative implications.

The action reflects S&P's increasing concerns regarding aaiPharma's cash flow generation prospects and near-term liquidity due to significant uncertainties surrounding the sales of two of its main pharmaceutical products.

The company is currently undergoing a board-initiated inquiry into unusual sales regarding Darvon/Darvocet and Brethine, resulting in excess product inventory levels at the wholesaler level. The inquiry is focusing on the second half of 2003, but there is a possibility that the inquiry may be widened to include additional products and/or a longer time frame. The inquiry has resulted in a delay in aaiPharma's 2003 10-K filing and the withdrawal of 2004 guidance by the company.

Separately, S&P said it is also concerned with aaiPharma's short-term liquidity. As of Dec. 31, 2003, the company had only roughly $9 million of cash on hand, and cash flows from operations will likely decline in 2004, given the lowered sales prospects of aaiPharma's product portfolio.

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