01/27 18:18 Warner-Lambert/Agouron match seen as win/win deal
By Ransdell Pierson
NEW YORK, Jan 27 (Reuters) - Investors on Wednesday signaled
their support for Warner-Lambert Co.'s <WLA.N> planned acquisition
of Agouron Pharmaceuticals Inc. <AGPH.O> by bidding up the
shares of both companies, an enthusiasm matched by most Wall
Street analysts.
Agouron shares closed up $2.31 at $59.12 on the Nasdaq
Wednesday, while Warner-Lambert rose $3.62 to $72.12 on the New
York Stock Exchange.
New Jersey-based Warner-Lambert late Tuesday said it signed a
definitive agreement to buy Agouron for $2.1 billion in stock. Each
share of Agouron would be exchanged for about $60 worth of
Warner-Lambert stock under the tax-free, pooling-of- interests
transaction.
Warner-Lambert said purchase of Agouron would allow it to acquire
eight promising experimental oncology and virology drugs without
diluting its planned 1999 per-share earnings growth of 30 percent.
Agouron markets Viracept, the best-selling protease inhibitor against
the HIV virus that causes AIDS, which accounted for most of the
company's fiscal-year 1998 revenues of $467 million.
"It's a great deal for both companies, which gives Warner- Lambert a
good AIDS franchise consisting of Viracept and other AIDS drugs
Agouron has in development," said Lehman Brothers analyst Dr. Eric
Ende.
He said Agouron's other anti-HIV drugs include a non- nucleoside
reverse transcriptase inhibitor in Phase II trials and Remune, a killed
and altered HIV virus being tested in Phase III trials to see if it will
stimulate the immune systems of infected patients.
"In addition to Agouron's pipeline, Warner-Lambert will get Agouron's
research business, which is one of the best in all of biotech," Ende
said.
Ende said Agouron was a leader in rational drug design, a
technology that involves first discovering the shape of a biological
target and then developing small particles with the right size and
shape to jam or otherwise disrupt the target.
"The merger is a good deal for both sides," said BT Alex Brown drug
analyst Kevin Tang," who added that Viracept's annual sales of about
$400 million could grow to $600 million over the next few years and
thereby provide more cash flow to Warner-Lambert.
Tang said one of the most interesting drugs in Agouron's pipeline is a
nasal spray designed to block replication of the rhinovirus, which
causes the common cold.
"It is quite promising and could be very exciting," Tang said of the
drug, now in Phase I trials in England.
Given the fact that Agouron must share its U.S. profits on Viracept
equally with development partner Japan Tobacco Inc. <2914.T>, Tang
said Warner-Lambert's $2.1 billion offer for Agouron is about eight
times Agouron's annual revenues.
"It's a fair price because pharmaceutical companies usually sell for
about seven times revenues," he added.
But Jim McCamant, editor of the Medical Technology Stock Letter,
believed the purchase price was "a little low" and should have been
about $65 to $70 in view of Agouron's research strengths, pipeline
and ever-increasing Viracept sales.
"On the other hand, there's no denying Agouron has been a good
investment," McCamant said, recalling that he had first recommended
the stock in 1990 when it was trading for $2 per share, on a
split-adjusted basis.
Dr. Charles Engelberg, an analyst for AmeriCal Securities in San
Francisco, said Agouron stands to be the real winner if the merger is
approved by its shareholders. He said Agouron's only approved drug,
Viracept, was facing growing competition in the marketplace,
including expected U.S. launches of Glaxo Wellcome Plc's <GLXO.L>
protease inhibitor, Amprenavir.
"Agouron was a company at a crossroads, potentially in big, big
trouble," Engelberg said.
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