Warner-Lambert Makes the Big Time With Lipitor - stock price rises and earnings are expected to rise due to good results with new drug - Brief Article

Kiplinger's Personal Finance Magazine, Nov, 1999 by Manuel Schiffres

Driven by the stunning success of its cholesterol-lowering drug, Lipitor, Warner-Lambert has joined the big leagues of drugmakers. Lipitor generated sales of $2.2 billion in 1998 (some 20% of total revenues), and it is expected to bring in $3.3 billion this year and more than $4 billion next. But the stock, which at the start of 1996 stood at a split-adjusted $15 a share, has been in a funk lately. After reaching $86 in July 1998, shares of Warner-Lambert (WLA, New York Stock Exchange) recently fetched just $63.

This is precisely the sort of stock that Chuck Bath, the longtime manager of Nationwide fund, loves to own. Bath likes to invest in "superior companies at average prices" and, in his view, Warner-Lambert fits the bill. Actually, with the stock selling at 27 times Bath's 2000 earnings forecast of $2.30 to $2.35 per share, the price-earnings ratio is a bit above the average. But, says Bath, given that earnings for the overall market typically grow 7% to 9% per year, Warner-Lambert's price seems reasonable because "we should see 15% to 20% annual earnings growth until the year 2005."

The stock's recent weakness, says Bath, has more to do with market dynamics than any problems at the company. In particular, he says, the steady earnings growth that drug, makers deliver looks relatively unappetizing when profits are zooming at more economically sensitive companies. And, of course, there is anxiety among investors that the government might try to put a lid on prescription-drug prices to rein in medicare costs.

Meanwhile, Warner-Lambert this year acquired Agouron Pharmaceuticals and its leading HIV drug, Viracept. The biotech company's pipeline includes potential treatments for cancer and other diseases and ought to alleviate some concerns that Warner-Lambert is overly dependent on Lipitor. Bath notes, too, that Warner-Lambert co-promotes Forest Labs' antidepressant, Celexa, and has a deal to co-promote Pfizer's migraine drug, Relpax.