Heard On The Street: Investors Focus On 'Scrip Sales' Of New Drugs
Dow Jones Online News, Thursday, February 19, 1998 at 02:06
By Susan Pulliam and Thomas M. Burton, Staff Reporters of The Wall
Street Journal
Wall Street has a new obsession when it comes to drug stocks: Scrip
sales.
Never heard of them? Don't worry. Investors' fascination with weekly
sales data for prescription sales -- or "scrip sales" -- of new drugs
has soared recently, helping propel some drug stocks higher and cause
others to crash and burn.
Bad scrip sales were behind Eli Lilly's tumble on Tuesday, when news
surfaced that sales of its new drug for osteoporosis and women's health,
Evista, have started off more slowly than expected.
Forget that the compound, which is used to help prevent, rather than
treat, osteoporosis, was launched only five weeks ago. Lilly shares took
a beating on the news, anyway, falling 1 3/4 Wednesday to 60, after
shedding 1 15/16 Tuesday.
The big tumble followed a run-up above 71 in early January, fueled in
large part by Evista fever, as well as by sales and expectations for
Lilly's new antipsychotic drug, Zyprexa.
Schroder analyst Jami Rubin says she believes high hopes for Evista
helped push Lilly's price/earnings multiple at its peak to almost 37,
compared with the drug group's average P/E of 31, the level where Lilly
has now returned.
Lilly's wipe-out isn't the first time in recent weeks that a drug
stock has been hit by disappointing prescription sales. It happened in
November to Bristol-Myers and its hypertension drug, Avapro. Since then
the stock has gone sideways, while the rest of the group has soared on
news of industry mergers.
More wipe-outs could materialize. Hopes are high for Pfizer's
male-impotence drug, Viagra, which has helped push its multiple to 40
times current-year earnings. And shares of Monsanto Co. have been
bolstered by high expectations for its arthritis drug, Celebra, for
which FDA approval won't be sought until later this year.
Why the sudden focus on prescription sales? Some investors say
attention sharpened last year, when Warner-Lambert's
cholesterol-lowering drug, Lipitor, generated much better sales right
off the starting block than were expected. "That in a way spoiled it for
everybody," says Schroder's Ms. Rubin, "because it defined a new
paradigm for what a successful launch should be."
Indeed, the initial data for Lilly's Evista weren't all that bad.
During its first five weeks on the market, Evista generated sales of
about one-third the level of a competitor, Merck's Fosamax, according to
Plymouth Meeting, Pa., market-research firm IMS America, a unit of
Cognizant Corp., which tracks "scrip sales."
But comparing Evista to Fosamax, which investors immediately did,
probably is a poor comparison. Fosamax is a one-disease drug, used for
treatment of osteoporosis and its bone fractures.
Evista has several disease targets. Part of a new class of
hormone-replacement drugs for older women, it is aimed at prevention of
several diseases. Clinical data suggest Evista has beneficial effects
against cardiac disease, and even possibly against breast cancer. So it
will be a while before its sales can be sorted out.
That said, Lilly still "would consider this a disappointment," says
J.P. Morgan analyst Carl Seiden. "I think they're promoting it very
aggressively." He still predicts Evista will hit $1.8 billion in sales
by 2002.
Alan S. Clark, president of Lilly's U.S. operations, says five-week
sales mean little. The company so far has marketed only to doctors "to
make sure they understand the drug," he says. Lilly is just now
beginning a direct-to-consumer advertising campaign focused on Evista.
"We believe we're on track with our expectations" of $200 million to
$400 million in sales during Evista's first year, he says.
Morgan's Mr. Seiden had better be right in forecasting huge sales of
Evista, for Lilly's sake. While Lilly's Zyprexa has had astonishing
early success -- $730 million in sales last year, its first year -- the
company still is very dependent on Prozac, the antidepressant drug which
accounts for about one-third of company sales but goes off patent early
in the next century.
Evista sales also will depend on whether breast cancer data continue
to hold up. Early clinical trials showed fewer new breast cancers than
in a control group, but so far the company is saying only that the drug
doesn't increase breast cancers.
So some investors feel it is too early to judge Evista. "It's a slow
takeoff, but I believe eventually this drug will generate $1 billion in
revenue," says Larry Feinberg of Oracle Partners.
Nonetheless, he sold his Lilly holdings three weeks ago and has
"significantly lightened up" on the drug group. "We've had three
consecutive up years and we could be in for a breather," he says.
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