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

To: BigKNY3 who wrote (6498)	12/14/1998 10:21:00 PM
From: BigKNY3	Read Replies (1) \| Respond to of 9523

SMARTMONEY ONLINE: Eli Lilly Pops A Prozac SmartMoney Interactiveby Stacey L. Bradford NEW YORK (Dow Jones)--A year ago, Eli Lilly & Co. (LLY) was suffering a bad case of melancholy. Sales of its new osteoporosis drug, Evista, were nothing but disappointing and concern was growing about the patent expiration for its blockbuster antidepressant, Prozac. While peers like Pfizer Inc. (PFE) and Warner-Lambert Co. (WLA) were handily beating the market's returns, Lilly's shares sat listless. Seemed like the drug giant could use a heavy dose of its own medicine. Well, it looks as if th e Prozac has finally kicked in. In the last couple of weeks, Lilly has been bathing in good news. Last Friday, the company announced results from clinical trials showing that Evista may help prevent breast cancer. The company also recently announced a long-awaited plan to save at least part of its Prozac franchise from generic competition. The result has been a growth spurt in Lilly shares that has driven the price up 32% since we first recommended it in August. The prognosis is definitely good. But a strong argument can be made that now is not the time to jump into this rebounding stock. While 19 of the 31 analysts who cover the company rate it a Strong Buy or Buy right now, Wall Street Journal ranked Steve O'Neil isn't so sure. "They (Lilly) have certainly become an upper tier company," says the analyst from J.J.B. Hilliard, W.L. Lyons. "But that doesn't mean their stock price is attractive at these levels." O'Neil points first to Lilly's valuation. It is currently trading at about 39 times 1999 earnings and ranks among the more expensive drug companies out there. That doesn't leave much wiggle room for bad news - especially for a company that has disappointed investors so recently. And despite the spate of positive headlines, the road ahead may very well be rocky. Take the Prozac issue. Lilly's best selling antidepressant compound will come off patent as early as December 2003. But as we predicted it might in our "Talk About Side Effects" artic le, the company has signed a licensing agreement with biotech firm Sepracor Inc. (SEPR) to produce a more pure version of the drug which should have fewer side effects. That's a welcome relief, but the fact is, Prozac could be forced off patent through litigation before the newer version hits the market. Generic drug companies Barr Laboratories Inc. (BRL) and Geneva are suing the company over patent infringement and the trial is expected to start next month. Even if Lilly wins, news about the suit is likely to create volatility. If Lilly loses, watch out at this multiple. Evista is hardly a slam dunk either. Lilly's new study found that women taking the drug over a period of three years and four months saw a 55% reduction of all types of breast cancer compared with those taking a placebo. Among postmenopausal women, the prevention rate was even higher for invasive breast cancer. On Monday the company announced that the Food and Drug Administration will allow it to change Evista labeling so that it stops just short of suggesting that doctors prescribe the drug to prevent cancer. Good news all, but there's no guarantee Evista will be adopted any more heartily by the medical community than it has been already. And more tests still have to be completed. Lilly will now have to conduct a multiyear study comparing Evista with Zeneca Group PLC's (ZEN) tamoxifen, the only drug that is now approved by the FDA to reduce breast cancer. The advantage for Lilly and Evista is that tamoxifen has side effects including the increased risk of uterine cancer. Evista may prove to have fewer, or less serious, side effects. Then again, it might not. James Keeney of ABN Amro says the company is well positioned to continue producing impressive earnings. He expects a growth rate of 18% to 20% over the next few years - a rate topped by only Warner-Lambert and Pfizer. Lilly is working on 46 new compounds or indications for its existing drugs with 21 in phase III clinical trials. Two have already been filed with the FDA. According to Stephen Scala of SG Cowen the average pharmaceutical company has 23 new drugs in its pipeline. With that in mind, we see no reason not to hang on to Lilly stock if you already own it. But if you've read the headlines and are thinking about getting in, you may be setting yourself up for a disappointment. We've said it all along: Lilly is a solid company with a strong pipeline. But at these prices, the upside may be limited. "We think if you want to pay a high multiple, investors are better off buying Pfizer," says Alex Zisson of Hambrecht & Quist. Sounds like good advice to us.