Magic 25 - Warner Lambert, Along With Drug Stocks, Remain Under Pressure
Jun 15, 1999
After several years of strong gains, drug stocks have slid
precipitously over the last few months. The AMEX
Pharmaceutical Index (AMEX:DRG) has fallen to 350 after
hitting 425 in early April. Shares of Warner Lambert have fallen
in sympathy, and are now down 27% from the 52-week high of
$85.94. That sell-off, though, has created a compelling buying opportunity.
Everen's Jeff Kraws concurs, noting that "Merck (NYSE:MRK - news) , Eli Lilly (NYSE:LLY - news) , Pfizer (NYSE:PFE - news) , the distributors and the pharmaceutical sector in general has been taking a hit. But, we think that the number and quality of drugs in the pipelines of some of these companies, Warner Lambert in particular, is very attractive".
What will help to drive the stock back up you ask? Wall Street is expecting to hear more about Pfizer's (NYSE:PFE - news) "quid" product. The quid product will go to Warner Lambert in exchange for Pfizer's co-promotion of Lipitor (which treats high levels of cholesterol in patients). The "quid" may be one or several products. Wall Street thinks, however, that the potential of Pfizer's product will be substantial, as Lipitor has been a very successful product for Warner Lambert with first quarter sales of $751 million and 1998 sales of $2.2 billion. Gruntal's David Saks thinks that Lipitor could generate as much as "$4.25 billion in FY 2000." It is the strength of
this product that leads us to believe that the quid product will be a real blockbuster.
In addition to the above catalyst, Wall Street is very positive on the pipeline product at Warner Lambert. One product, Pregabalin, with indications in epilepsy is expected to be filed with the FDA (for approval) within 18 months. Wall Street thinks that Pregabalin has the potential to be a $1-$2 billion product. Other drugs in the pipeline with indications for depression, diabetes, and arthritis may also help to provide a much needed catalyst in the form of news in coming months.
It's also important to note that bad news regarding Rezulin has already been factored into the stock price. There had been some concern that Rezulin, which is used to treat type II diabetes might have been pulled off the shelves due to abnormally high rates of liver toxicity in patients taking the product. This did not happen, but had been a damper on the stock price.
Consensus estimates have the company earning $0.51 per share on average for the June quarter. Based upon what we are hearing from the company and from others in the industry, there should be no surprises. For the year Wall Street is expecting the company to earn $1.92 per share and $2.32 per share on average in FY 2000.
Shares of Warner Lambert are undervalued based upon near term weakness in the pharmaceutical industry as well as the anticipated earnings growth rate of 20.9%.
Analyst: Glenn S. Curtis
Updated on 6/15/99 with WLA trading at $62.63 Recommended 11/16/98 at $73.63
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