Magic 25 Warner Lambert Has a Good News/Bad News Day
Jun 17, 1999
On Wednesday, investors got a scare in late-day trading in
shares of Warner Lambert. Just before the market closed
today, the FDA issued a press release that highlighted
significantly striver labeling for the firm's Rezulin diabetes drug.
The FDA also reiterated that Rezulin should not be used as a
first line therapy for diabetes and that prospective Rezulin
patients need to have liver chemistries tested before therapy.
Patients will then have to have these tests repeated at later dates. A more detailed description of the proper way to use Rezulin will also have to be made available for distribution to patients by pharmacists. According to the company, these announcements were a "non-event" and that the outcomes and labeling restrictions were well known by Wall Street. We agree.
The timing of the FDA action was unfortunate as Warner Lambert and Pfizer (NYSE:PFE - Pfizer) announced earlier in the day that the two companies will co-promote Relpax, a migraine product that Wall Street is estimating will ultimately have $500 million in annual sales. Relpax has been submitted to the FDA for approval and is expected to be approved sometime in August.
Lipitor has been a very successful product for Warner Lambert with first quarter sales of $751 million. Some have questioned if this is a fair "swap." While it has never been publicly announced we understand that the revenue split on Lipitor, Warner Lambert's drug for cholesterol reduction is better than 50-50 in favor of WLA. The split on Relpax is expected to be 50-50.
Should Relpax fail to deliver certain sales targets that have not been publicly disclosed, Warner Lambert may receive an increase in its revenue sharing arrangement on Lipitor, Relpax, or both. Warner Lambert may also receive access to other products for co-promotion should Relpax not work out as planned. Pfizer and Warner Lambert have agreed that the co-promotion deal for Relpax will be in effect for 10 years. The Lipitor arrangement is in effect for 10 years dating from
1997.
The two companies are also expected to investigate the possibility of co-promoting a combined drug that includes Lipitor and Pfizer's anti-hypertensive medication, Norvasc. It is too early, however, to speculate the potential of such a product.
We believe that investors should continue to buy shares of Warner Lambert on dips as the company continues to have a strong pipeline and is expected to show earnings growth in excess of its peer group over the next 12 months. The "quid" product is now known and we believe that other news and Wall Street speculation about the potential for Relpax will help to provide a catalyst for the depressed shares.
Analyst: Glenn S. Curtis
Updated on 6/16/99 with WLA trading at $62.31 Recommended 11/16/98 at $73.63
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