News from the Bear Stearns Health Conference courtesy of www.labpuppy.com.
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During the Bear Stearns Healthcare Conference today, I saw Warner-Lambert (WLA), Bristol-Myers Squibb (BMY) and Pfizer (PFE).
Warner-Lambert (WLA) had a very upbeat presentation. They expect to grow their earnings by 40% in 1998 and by 30% in 1999. This tremendous earnings growth is coming from the success of Lipitor, their cholesterol drug.
This Lipitor was launched in February of 1997 and has been a huge hit. It is being co-promoted by Pfizer (PFE). It now accounts for nearly 22% of the company's revenue.
They admitted that they need to transition from relying on a few hit products in order to become a "sustainable" growth stock. Remember, 46% of WLA's revenue comes from confectionery (i.e. Trident gum) and consumer health products (i.e. Listerine).
Rezulin is their other large pharmaceutical product. It is a therapeutic for Type II diabetes. However, some people are concerned that it causes liver problems and this concern could limit this product's upside. This product accounts for 8% of the company's revenue.
The company has a solid pipeline including Celexa (an anti-depressant), Clinafloxacin (an antibiotic), FemHRT (hormone replacement), etc. However, none of these products are huge potential blockbusters.
This stock has become a momentum stock. The short-term prospects are bright but the company is relying primarily on the success of one drug, Lipitor. In my opinion, I would rather own a more diversified company. Moreover, their other main product, Rezulin, is facing some safety issues.
During the conference, Bristol-Myers Squibb (BMY) talked about their new product pipeline. Over the next two years, they expect to launch Orzel (for colorectal cancer), Omapatrilat (anti-hypertension) which BMY thinks could be a blockbuster, Lobucavir (for hepatitis B and herpes), etc.
BMY is a solid investment, which should provide good returns for any long-term holder (especially in an IRA account, etc.). However, I wouldn't get excited by this stock until they announce that they are planning to divest some of their non-pharmaceutical business. Other pharmaceutical companies have done this (i.e. Pfizer) to great success as they focus on their faster growing and higher margin pharmaceutical products.
By the way, Prudential Securities today upgraded BMY from an Accumulate to a Buy based on valuation (too low). BMY has come off recently because analysts have lowered earnings estimates slightly. The company's infant nutritional and OTC drugs have been impacted by the economic turmoil in the emerging markets of Asia and Latin America.
During the conference, Pfizer (PFE) reviewed their current products and their new product pipeline. They didn't state anything new but re-emphasized the company's strong potential given its diversified portfolio of new and existing products. In additionally, they mentioned that they do not face any major patent expirations until after 2005 (unlike some of its major competitors).
They stated that Viagra (their impotence drug) will start being sold in Europe in October which should "reinvigorate" Viagra's sales. The company is also starting a direct-to-consumer TV campaign to promote this product (primarily to educate potential users).
They are also benefiting from being the co-promoter of WLA's Lipitor, the "wonder" drug for 1998.
In 1999, PFE should also benefit from being the co-promoter of Celebra, Monsanto's Cox-2 arthritis drug. Pfizer stated that Cox-2 drugs (and this includes products such as Merck's Vioxx) has the potential of doubling the $12.1 billion arthritis drug market. Most analysts think that Celebra has a peak sales potential of $1.0-1.5 billion (per year).
This stock has very solid prospects and is definitely worth owning despite its high valuation. Nevertheless, always remember – diversify, diversify, diversify! Don't rely on one drug stock – always buy a basket of pharmaceutical stocks. Also don't let drug stocks dominate your portfolio – buy other types of stocks (i.e. technology, etc.) to offset any potential decline in the pharmaceutical sector.
By the way, PFE also announced a $5 billion share repurchase program today. This company is very shareholder oriented as it is buying back its own stock and has sold off most of its non-pharmaceutical operations.
I saw also Cardinal Health (CAH) and McKesson (MCK) yesterday at the conference and they were very interesting. However, that is another story as my wife is hitting me right now and muttering something about me spending too much time with my "mistress" (the computer) so I have to go. :)
Tomorrow, I hope to listen to American Home Products (AHP) and Schering-Plough (SGP).
9/23/98
The stock market soared 257 points due to positively perceived commentary from the Federal Reserve Chairman, Alan Greenspan, as he spoke to the Senate Banking Committee. Investors believe that the Fed will cut rates at their meeting next week.
I was able to attend the Johnson & Johnson (JNJ), SmithKline Beecham (SBH) and Eli Lilly (LLY) presentations today at the Bear Stearns Healthcare Conference.
Unfortunately, during the JNJ presentation, the company did not speak about its pharmaceutical products. However, the head of their Cordis business unit spoke about how they plan to turn this division around. As you all know, only approximately 35-40% of JNJ's revenue comes from pharmaceutical products. The rest comes from medical products, consumer items, etc. The Cordis unit (and in particular, its stent business) has been a drag on JNJ's performance. The stent market is seeing heavy competition and JNJ has lost market share in this sector. During the presentation, JNJ highlighted the many new products that it plans to introduce in this sector over the next year and a half. However, I was unimpressed and I do not see this unit's growth re-accelerating to any significant degree.
SmithKline's presentation was interesting. I had always look unfavorably on European pharmaceutical companies because of their limited exposure to the faster growing US market and because the European markets have heavily restrictions on pharmaceutical pricing, etc.
SBH reviewed their Baycol product (for cholesterol) which they expect to go after Warner-Lambert's (WLA) Lipitor with a year or so. However, I expect it will be hard for SBH to crack Lipitor's dominance unless it can show better results. They also talked about their Lyme disease vaccine, Lymerix, which is awaiting FDA approval. In addition, they were very excited by another drug called Avandia which is in Phase 3 clinical trials. This product helps diabetics before they need to go on to insulin. If successful in attacking insulin resistance in diabetics, this could hurt Eli Lilly's (LLY) insulin franchise.
Eli Lilly spoke primarily about Evista (their osteoporosis product) and Prozac (their very successful anti-depressant drug). Evista sales have been slower than expected as it is hard to get people to take expensive drugs for something that will happen years in the future. Nevertheless, the company is doing additional studies on Evista for the prevention of breast cancer and heart problems. Preliminary data is very encouraging.
The company also talked about how it is trying to prevent too much damage occurring when Prozac goes off patent. As you know, this very successful drug accounts for about 30% of LLY's revenue and even more of its profits. The company is fighting a legal battle to push the patent out to 2004 versus a possible patent expiration in 2001. In addition, the company is filing additional indications for Prozac (such as for panic disorder) in order to help lengthen its patent life. The company is hoping that existing products such as Repro, Gemzar, Evista and Zyprexia as well as a solid new product pipeline will fill in for any revenue shortfall coming from Prozac. This stock will probably continue to suffer from investor "anxiety" as we approach the end of Prozac's patent life. |
