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Biotech / Medical : PFE (Pfizer) How high will it go? -- Ignore unavailable to you. Want to Upgrade?

To: Anthony Wong who wrote (6291)	11/13/1998 10:55:00 PM
From: Anthony Wong	Read Replies (1) \| Respond to of 9523

Smart Money: The Viagra Made Me Do It November 12, 1998 By Stacey L. Bradford IT'S NOT often that a company's product enters the lexicon, but it would be fair to say that drug maker Pfizer (PFE) has had a Viagra kind of year. On the strength of the famed anti-impotence medicine alone, the company's shares soared as much as 60% during the first half of 1998. But just as Viagra was threatening to become a national obsession, investors and the public began to have second thoughts about the little blue pill. First came the reports of Viagra-induced deaths. Then there were some annoying side-effects, and reports that some health insurers refused to reimburse their customers for the cost of the drug. As a result, sales slowed drastically. And Wall Street began to wonder if it really was wise to be paying almost 50 times estimated 1999 earnings for Pfizer shares. That was especially worrisome given the fact that Pfizer's earnings were increasing at 20% a year. You know what happened next: Pfizer's stock fell 34 points, or 28%, off its high of 121 3/4. But guess what? Like a man with a bellyful of its signature medication, Pfizer is back. The stock is a mere 13% off its all-time high, and according to First Call, 18 out of the 30 analysts who cover the company now rank it either Strong Buy or Buy. Interestingly enough, five of those ratings were raised to Strong Buy after a meeting the company held with analysts last Friday. The thrust of the meeting was to convince the analysts that there is more to Pfizer than just Viagra. Pfizer pointed out that it now has 62 new compounds in its drug pipeline and isn't facing any major patent expirations for the next five years. Pfizer executives then told investors that they had set a goal of transforming the company into the No. 1 drug maker in the world. That's a pretty ambitious goal, considering the fact that Merck (MRK), which currently sits on top, reported $23.6 billion in sales last year while Pfizer generated $12.5 billion. As you can see from the upgrades and the recovering stock price, Wall Street has bought in. But there are a couple of analysts who aren't swallowing Pfizer's story. And it's worth hearing their version of things, if only as a reality check. Neil Sweig of Southeast Partners, one of the two analysts who downgraded the stock, explains that he was waiting until after hearing management's presentation to make any rating changes so that he could take everything into consideration. Finally, he decided to lower his Buy rating to a Hold. "One has to come to a decision of what price you are willing to pay for excellent growth," Sweig explains. "Sometimes that can get out of hand." Another analyst, Anthony Butler of Lehman Brothers, has had a Neutral on the stock for some time. And the meeting didn't convince him to think differently. "Pfizer remains a top-quality drug company, with solid core products," Butler writes in a research note. But, Butler does say that investors should be aware of some concerns he has with the current lineup of drugs that are expected to enter the market over the next couple of years. He points out that many of Pfizer's drugs are entering very competitive markets or have significant efficacy issues. For example, Wall Street was pinning its hopes on Tikosyn, a treatment for heart arrhythmia. Unfortunately, in a recent clinical trial, patients taking Tikosyn did not live significantly longer than those taking a placebo. As a result, at just $300 million, sales are smaller than initially expected, Butler says. This is a mere drop in the bucket compared with Viagra, which is expected to sell $850 million worth this year. Another potential disappointment may be Relpax, a compound to treat migraines. Not only will the drug compete in a tight market, but to date there is little data on Relpax that seems to indicate it is substantially different from other migraine medications. These analysts argue that everything has to go right for Pfizer for its multiple to be justified. And that's a very low percentage play. The Food and Drug Administration recently turned down Pfizer's application for approval of a new schizophrenia drug called Zeldox due to concerns it causes heart problems. Pfizer must now do head-to-head tests with antipsychotic medications to see if Zeldox's side-effects are any worse. Wall Street is now hoping the drug will receive approval by late 2000. And even if Zeldox is approved, it will face stiff competition from similar compounds marketed by Eli Lilly (LLY) and Johnson & Johnson (JNJ). The concerns that Butler poses are certainly not unique to Pfizer. Many drug companies are developing drugs that aren't all that different from the competition. But few other drug stocks command Pfizer's multiple. And few have risen and fallen and then risen again as fast as Pfizer. Don't bother looking for a rational explanation: Just blame it on Viagra. smartmoney.com