Celebrex Alone Can't Cure Monsanto
By Stacey L. Bradford
SmartMoney Today
March 5, 1999
A BLOCKBUSTER DRUG isn't
what it used to be. Not too long
ago, even the rumor of a billion
dollar pill was enough to send a
pharmaceutical firm's stock price
soaring. And once that company
won approval for the drug,
investors were almost certain
they had struck gold. Case in
point: Pfizer's (PFE) Viagra.
Times certainly have changed.
Just take a look at Monsanto
(MTC). After only seven weeks
on the market, sales of its
arthritis drug Celebrex have
surpassed Viagra in generating a
record number of daily
prescriptions. And most of this
happened before its marketing
agreement with Pfizer kicked in.
Experts now predict Celebrex is likely to generate $2 billion this year. It now
holds 20% of the arthritis-pain market. And yet, Monsanto stock is still
lurking in the shadows like a depressive without his Prozac.
The stock still hasn't rebounded after its fall last October when Monsanto's
proposed merger with American Home Products (AHP) was called off.
The company's shares dropped from 50 3/8 down to 34. In August its
shares reached as high as almost 64. But the failed merger isn't the only
issue investors have on their minds. In the past year the company has
leveraged its balance sheet with $8 billion of debt to buy seed and other
agricultural-biotechnology companies. Also, a couple of promising new
cardiovascular drugs were abandoned after clinical trials proved
disappointing. These new drugs could have generated up to $750 million
and ended the argument that Monsanto is just a one-drug company. Some
investors may also be worried about Merck's (MRK) competing arthritis
drug Vioxx stealing share from Celebrex once it hits the market next month.
The good news is that analysts believe all of these uncertainties are already
reflected in Monsanto's share price and that it's unlikely the stock will drop
further from here. Keep in mind that since Celebrex hit the market in
January, the company's shares have jumped 18%. This is consistent with
Warner-Lambert's (WLA) performance after it first launched its
blockbuster cholesterol drug Lipitor, says analyst Richard Stover of Arnhold
& S. Bleichroeder. After four months of Lipitor sales, Warner-Lambert stock
jumped 60%.
In Monsanto's case, it may take more than $2 billion worth of Celebrex
sales to boost its stock price further. Investors are waiting for positive news
from the company's new-drug pipeline. Monsanto is now pinning its hopes
on second-generation Cox II inhibitors, the same class of drugs as
Celebrex.
Investors are also waiting to see how long it will take Monsanto to cut
costs. Donald Carson of J.P. Morgan Securities says he expects to see
progress in 1999 and for earnings to pick up in 2000. He points out that
Monsanto is significantly downsizing its administrative staff; eliminating a
number of ancillary corporate initiatives, such as R&D into what is known as
nutraceutical/functional food; and is selling off noncore businesses.
Finally, if the rumor that Monsanto and DuPont (DD) are planning on
merging either proves false or peters out, some investors would also be
pleased. "This is a depressant on the stock," Stover says. "If you bought
Monsanto for the upside Celebrex can give you, a transaction with DuPont
would bury the upside."
The sad truth is, Monsanto shares aren't likely to revisit their August highs
anytime soon. But new investors face little downside risk. Celebrex sales
are soaring and eventually the company's agricultural business will be a
power to be reckoned with. Monsanto stock could trade back in the 50 to
60 range over the next year.
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