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Warner Lambert Dodges The Bullet (3/29)
Individual Investor Online Analysis
The FDA has finally weighed in with its review of Warner Lambert's Rezulin. The prospect of a negative review has held the shares back in recent months. The FDA decided to look into the safety characteristics of the diabetes drug after an increased rate of liver failure among patients who have taken the it.
The FDA noted that after taking Rezulin, 43 patients have suffered from liver failure and 28 people have died. On Friday an FDA advisory panel suggested that doctors should try other diabetes drugs first and prescribe Rezulin in combination with other drugs after other treatment has failed.
This conclusion, while not a full vindication, should, in our opinion, be enough to help move the stock to a higher level. There had been concern that recent deaths linked to the Type II diabetes drug might derail the company's plans to be competitive in the diabetes market . This is not the case. Warner Lambert will continue to have access to the estimated 15 million American who presently suffer from diabetes.
Rezulin is used by roughly 750,000 Americans, and has been prescribed 1.6 million times since the product was introduced in March 1997. Since its introduction, questions of abnormal liver function have persisted. Management has been quick to claim, however, that the product was approved because "the product's benefits far outweigh the associated risks."
It is important to note, however that several reviewers of the product did have harsh words for its side effects. Dr. David Graham, an FDA epidemiologist made his case that up to 1 patient in1,800 may suffer from liver damage after six months of use. Nonetheless, Rezulin managed to survive intense scrutiny.
We remain bullish on the company over the longer-term. However, SmithKline Beecham's (NYSE:SKB) and Eli Lilly's (NYSE:LLY) experimental diabetes products may eventually challenge Warner Lambert's market position. In the interim, Warner Lambert is expected to generate $800 million in revenues from Rezulin in FY 1999. Thereafter the expectation is that sales from Rezulin should decline at a rate of about 10% per year as other competitors enter the market.
The next thing we should hear from the company should be its earnings release. Consensus estimates have the company earning $0.44 per share for the first quarter ending March. We believe that the company will likely meet or exceed these estimates.
Analyst: Glenn S. Curtis
Updated on 3/29/99 with WLA trading at $70.63 Recommended 11/16/98 at $73.63
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