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

To: Jim Lamb who wrote (6503)	12/16/1998 8:31:00 PM
From: BigKNY3	Read Replies (1) \| Respond to of 9523

Smartmoney selects WLA then PFE for the best Pharma Investments for 1999. Have PFun! BigKNY3 Pharmaceuticals First Choice: Warner-Lambert (WLA) Runner-Up: Pfizer (PFE) INVESTORS WHO'VE BEEN turning their backs on pharmaceuticals because they're richly valued have missed out on some of the market's best performers. Over the past two years alone, the Dow Jones Pharmaceuticals index has soared 109%. In part that's because of drug companies' cachet as defensive investments during economic downturns, but it's also because of the surprisingly strong growth of their earnings. Even though pharmaceutical valuations are high -- drugmakers trade at an average P/E of 34 based on 1999 earnings -- selected companies should continue to generate solid earnings growth this year. The diversified drug and consumer goods maker Warner-Lambert, which is the No. 1 holding of such top-performing funds as Fidelity Select Health Care and Vanguard Health Care, is a prime example. Though its P/E based on 1999 earnings ranges in the 40s, it boasts a three- to five-year estimated growth rate of 24.9%, one of the highest of any large-cap drug stock. That might sound suspicious in a market where growth rates have been routinely faltering, but there are good reasons for those expectations. For one, Warner-Lambert currently sells two of the industry's blockbuster drugs, Lipitor and ReZulin. The former is the No. 1-selling cholesterol-lowering drug, while the latter is the major new diabetes drug. Both of these products are in the very early stages of their life cycles, which means they should have several more years of solid sales growth before going off-patent (the point when other companies can make cheaper generic versions of the same drug). In fact, Lipitor is only now entering Japan, one of Warner's largest international markets. More good news: Because it co-marketed Lipitor with the drugmaker Pfizer, Warner-Lambert now gets to choose and co-market a drug from Pfizer's highly regarded pipeline. Plenty of other drugs at the Morris Plains, N.J., outfit are also going gangbusters. Sales of the company's blood-pressure-lowering drug Accupril are surging, as is the anticonvulsant Neurontin. Analyst Steven Gerber of CIBC Oppenheimer describes Neurontin as "kind of a sleeper product," noting that in addition to its primary function of treating epilepsy, it's being increasingly used for other ailments, such as chronic pain. "It looks like it's about to accelerate its growth rate," says Gerber, a Wall Street Journal All-Star Analyst. "It could be a $500 million product for 1999," up from $400 million in 1998. That would make it the company's No. 3 drug. Our runner-up is pharmaceutical giant Pfizer. Despite the company's impressive drug pipeline and diversity of products, the market has seemingly been focused on just one issue: Viagra, which accounts for only 6% of the company's revenue. In fact, the stock fell by $5.50 after the company's recent announcement of weaker-than-expected third-quarter sales of the drug. Shares are now trading at a forward P/E of 45 -- admittedly expensive, but still 30% off the stock's five-year P/E high of 64. Analysts think there's more to this story than just slowing Viagra sales, and that both that particular drug and overall earnings will bounce back in 1999. They still have the company's earnings pegged at a 19.5% growth rate over the next three to five years. Why? Pfizer, which spends 16% of revenue on R&D, more than any other large-cap drugmaker, has what is arguably the strongest drug pipeline, having produced such products as the antidepressant Zoloft, the hypertension drug Norvasc and the Alzheimer's drug Aricept, to name a few. And this year's product launches, which include the antiarthritis drug Celebra, widely regarded as a potential blockbuster, are expected to add $1 billion to Pfizer's annual revenue. Nor should investors write off a turnaround in Viagra sales. Pfizer is pursuing a vigorous direct-to-consumer marketing campaign. It also introduced the drug to Europe at the end of 1998, and Viagra should arrive in the Japanese market during the second half of this year.