Wednesday November 3, 8:25 am Eastern Time
BEFORE THE BELL - AHP , Warner-Lambert rise
NEW YORK, Nov 3 (Reuters) - Shares of Warner-Lambert Co. (NYSE:WLA - news) and American Home Products Corp. rose in pre-opening trade Wednesday after The Wall Street Journal reported the drug companies were in talks to merge in a $65 billion deal.
Warner-Lambert was at 85 on the Instinet electronic broker system, up from a Tuesday close at 78-7/16. AHP was at 54-1/2, up from a 50-3/8 close.
A merger would unite two of the biggest drug companies in the world.
Neither company would comment on the newspaper report.
CNBC television reported that the companies came to an agreement Wednesday and the boards would vote Thursday on the proposed merger. If approved, the deal would be announced Thursday, it said.
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and....
"Warner-Lambert, AHP Talks Reignite European Copycat Talk"
By Michael Reid
interactive.wsj.com
"European drug stocks have been lifted Wednesday by a report that U.S. drug companies Warner-Lambert Co. (WLA) and American Home Products Corp. (AHP) are in merger talks, with investors banking on yet more deals among their European rivals.
Britain's SmithKline Beecham PLC (SBH), Glaxo Wellcome PLC (GLX) and Switzerland's Novartis AG (Z.NOV) got the biggest boosts from the news. At 1221 GMT, SmithKline shares were up 28.5 pence, or 3.7%, at 796 pence, Glaxo shares were up 42 pence, or 2.2%, at 1,801 pence, and Novartis shares were CHF54.00, or 2.4%, better at CHF2326.00.
Earlier Wednesday, The Wall Street Journal reported Warner-Lambert and AHP were in talks about a $65 billion merger - the largest drugs tie-up ever.
Until now, drug industry consolidation has been most prevalent in Europe, with the likes of France's Sanofi-Synthelabo (F.SAN), Anglo-Swedish group AstraZeneca PLC (AZN) and Franco-Germanic combine Aventis created through mergers.
While some analysts described the potential U.S. deal as a "catch-up" to the European trend, they said it does reemphasize the remarkable level of boardroom talking going on between drug companies, a sign that more deals are surely in the offing.
"It puts the sector in the spotlight again, intensifying the discussions among them all," said Alexien Isaac, a pharmaceutical analyst at Teather & Greenwood. "Everyone is speaking to everyone anyway. Consolidation is here to stay and there are a number of companies looking for partners, such as SmithKline Beecham, Glaxo Wellcome and Novartis," she said.
Sutherlands analyst Sally Bennett said "it was only a matter of time" before the U.S. companies took part in consolidation. "American Home has been looking for a partner for a while. It just puts consolidation back on the agenda."
Bennett said the U.S. deal may up the urgency of European executives to secure partners. "Larger pharmaceutical companies have to take part in that consolidation or be left behind," she said.
Critical Mass, R&D Muscle Pivotal To Survival
Faced with spiraling drug development costs, critical mass is paramount to a drug company's survival in the global top ten rankings. It now costs about $500 million to develop a drug and take it to market. When blockbusters like Losec, Zantac and Prozac were developed, the cost was more like $50 million. Yet despite the high cost, the attrition rate is restrictive. More than 80% of Phase I drugs never make it to market.
And with the global drugs community facing an unprecedented raft of patent expiries on blockbuster drugs in coming years, observers are banking on more mega-mergers as the drugs leaders seek a wider array of therapeutic portfolios to cushion declines in sales of once-key drugs.
That was precisely the reasoning behind AstraZeneca's creation. Astra's blockbuster anti-ulcer drug Losec loses patent cover in 2001 and 2002, as does Zeneca's hypertension drug Zestrl. Together these account for almost 50% of AstraZeneca's drug sales, but now at least they have added research and development muscle which is more likely to roll out replacement blockbusters.
Analysts said Glaxo's Chairman Richard Sykes has openly embraced the idea of consolidation. SmithKline's Chief Executive Jan Leschly may have binned merger suggestions for the last 18 months, but the fact he talked with AHP then Glaxo inside a month in early 1998 sent a merger-message investors have been loath to let slip.
Embarrassingly for Leschly, SmithKline shares jump every time there's a rumor he's considering early retirement - a clear indication that investors think his likely heir Jean-Pierre Garnier will marry the company off once he takes charge.
SmithKline has been linked with Glaxo and Novartis and Bristol-Myers Squibb Co. (BMY) of the U.S., while Glaxo has been linked with Ireland's Elan Corp. (ELN) and also with Bristol-Myers Squibb.
But analysts are loath to predict which two companies will tie-up next, given the raft of permutations possible and the various talks which have already taken place.
"(AHP-Warner) is a catch-up...it's going to cause a lot of speculation but I don't think anyone has to do anything," said Salomon Smith Barney analyst Alexandra Hauber.
Should Novartis consider a deal it would be a merger rather than an acquisition, said Birgit Kuhlhoff, analyst at Bank Lombard Odier & Cie.
But she thinks a deal is unlikely before Novartis decides to spin-off or sell its ailing agricultural unit.
Before that, Novartis' price/earnings ratios of 24.4 for 2000 earnings makes it an unattractive merger partner, she said. It also doesn't have the much sought after U.S. listing.
Many U.S. companies have a p/e of around 27, she said.
In comparison, SmithKline and Glaxo's earnings potential and pipeline strength is reflected in their heady p/e ratios in the thirties.
Roche's share structure makes it unlikely that the company will be part of a merger, said Kuhlhoff. The bulk of Roche's bearer shares are still owned by the founding family. The more liquid participation certificates entitle the holders for a dividend, but have no voting rights. -By Michael Reid;44-171-842-9292; Michael.Reid@dowjones.com (Steve Rhinds in Paris and Anita Greil in Zurich contributed to this report)."
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I wonder if Agouron will still keep its name or if Warner-Lambert itself will keep their name. Hope so.
Agouron is supposed to be presenting some data for AG3340 at some meeting very soon. I saw it on SI somewhere but don't remember where.
Hope this will give some impetus to IMNR and the trials of Remune, having the support of three pharmas now: WLA, AHP, and Agouron
(reasonable assumption, imo)
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