Here's an upbeat conference call for WLA.
02:37pm EDT 3-May-99 CIBC World Markets Corp. (Mara Goldstein 212-667-4327) WL
WLA: Conference Call Summary-Putting Rezulin In Perspective
CIBC World Markets
May 3, 1999
Pharmaceuticals Warner Lambert
Steven B. Gerber, M.D. (310) 446-7456 Conference Call Summary-Putting
Mara Goldstein (212) 667-4327 Rezulin In Perspective
Elliot Wilbur, CFA (310) 446-7204
Investment Conclusion
Last week we held a conference call with Rating: BUY
institutional investors featuring Randy WLA-NYSE(4/30/99) $67 13/16
Whitcomb, MD, Vice President Clinical 52-week $85 15/16-59 3/4
Research, Diabetes & Endocrinology at Warner Shares Out 881 Million
Lambert. The call focused on Rezulin with Float 880 Million Shares
Dr. Whitcomb providing a perspective of Market Cap $60 Billion
Rezulin's risks and benefits in light of Div/Yield $0.80/1.2%
data on potential competitors, Actos Fiscal Year December
(Takeda/Eli Lilly) and Avandia (SmithKline Book Value $4.24 per Share
Beecham). 1999E ROE 40.0%
LT Debt $1.5 Billion
Rezulin's history of rapid acceptance and Preferred Nil
label changes (due to liver toxicity) imply Com Equity $3.6 Billion
that an opportunity for drugs that have a
more benign liver toxicity profile. FDA
panel meetings of 4/22-3 suggest that Actos
and Avandia are safer to the liver, but may Earnings per Share
have other effects (increasing LDL 1998 $1.48
cholesterol-Avandia, edema-Actos). Data is 1999E $1.92
emerging hinting that while Rezulin, Actos 2000E $2.40
and Avandia are thiazolidinediones, they may
each have unique therapeutic benefits and P/E Ratio
safety issues profiles. 1998 45.8X
1999E 35.3X
While head-to-head data are not available, 2000E 28.3X
Rezulin appears to fare favorably with
respect to weight gain, edema and elevation
of LDL cholesterol versus Actos and Avandia.
Efficacy data suggest Rezulin and Avandia
have a similar treatment effects (Actos data Company Description:
is not yet available). Warner-Lambert Co. develops
consumer products and
Rezulin's therapeutic profile appears to be pharmaceuticals with 1998 sales
broadening: According to published clinical of $10.2 billion. Products
work, Rezulin was found to reduce artery include Listerine mouthwash,
thickness, possibly reducing atherosclerotic anti-cholesterol drug Lipitor
disease and improving endothelial function. and candy and gum such as
Chiclets and Certs.
WLA is currently planning head-to-head
studies, examining safety and side effects.
While WLA is amassing evidence that Rezulin
possesses some unique features, and may have
other advantages in terms of weight gain and
edema, the liver toxicity issue is too big
to circumvent at this point. However, WLA's
fortunes do not lie with Rezulin, and the
potential detrimental impact has been far
exaggerated at this point in time. We
continue to rate the shares Buy.
Fundamentals Fine, Shares Are Inexpensive
WLA has the highest growth rate in the industry which is largely being fueled
by Lipitor, with the likely decline in Rezulin's sales already well reflected
in the valuation. While the concern is that the company has little else in
the near term to provide visible evidence of sustainable growth once Lipitor
reaches maturity, this is already well reflected in the valuation. EPS should
continue to grow at rates above the peer group average, helped by the success
of products like Celexa, a co-marketed product for depression and Neurontin
for epilepsy, both of which are likely to absorb the loss of profit
contribution from Rezulin, as well as the continued dominance of Lipitor in
the cholesterol lowering market. Near term events to watch for include an
analyst meeting on 5/18 where we expect new CEO, Lodewijk de Vink, to outline
plans to build a stable pharmaceutical business, the completion of the Agouron
deal, an announcement regarding the Pfizer product quid and possibly a patent
extension for Neurontin (expected to eclipse Rezulin in sales this year). In
the meantime, the shares represent good fundamental value, trading below the
peer group average P/E multiple and at a slight discount to the S&P
Industrials. Our price target remains $78 per share using a 32X P/E multiple
(a 10% premium to S&P Industrials) on our 2000 EPS forecast of $2.40.
Our quarterly EPS estimates are shown below.
1 Qtr. 2 Qtr. 3 Qtr. 4 Qtr. Year
1998 Actual $0.33 $0.40 $0.35 $0.40 $1.48
1999E Current $0.45A $0.51E $0.46E $0.51E $1.92E
2000E Current --- --- --- --- $2.40E
Stock prices (as of 4/30/99) of companies mentioned in this report:
Eli Lilly & Co. (LLY - NYSE $73 5/8, Hold)
SmithKline Beecham plc (SBH - NYSE $65 11/16, Hold)
Takeda Chemicals Industries, Ltd. (TDCHF - OTC $44 3/8, not rated)
Exhibit 1
Exhibit 2
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