WARNER-LAMBERT PLAN FOR QUARTET OF 1996 NDA FILINGS ATTRACTS FAVOR ON WALL STREET; PHARMACIA & UPJOHN MERGER HAS SPOTLIGHT BACK ON NEW PRODUCT FLOW

Warner-Lambert is regaining strength on Wall Street thanks to improving perceptions of the strength of the company's new product pipeline. The stock jumped more than 10% in the third quarter, closing at 95-1/4, up 8-7/8 points.

Warner-Lambert predicts four NDA filings in 1996: troglitazone for the treatment of non-insulin dependent (Type II) diabetes, atorvastatin for lipid regulation, the cephalosporin antibiotic cefdinir and a monotherapy claim for the anti-epileptic Neurontin.

The troglitazone program allows Warner-Lambert to capitalize on investor interest in oral anti-diabetic therapy. Two recent launches in the category (Pfizer's Glucotrol XL and Bristol- Myers Squibb/Lipha's Glucophage) are doing well, and a third new entrant (Bayer's Precose) was approved during the quarter.

Troglitazone is in Phase III studies, and an NDA will be filed in December 1996, Warner-Lambert President Lodewijk de Vink told a Bear Stearns analysts conference Sept. 20. "We believe that our [troglitazone] sales projections of about $400 mil. for North America alone may err on the cautious side," de Vink declared. Glucotrol XL posted $19.8 mil. in second quarter sales, while Glucophage captured an 11.3% share of new scripts in the oral antidiabetic market in July, according to Scott-Levin data.

Warner-Lambert is looking at expanding indications for troglitazone beyond Type II diabetes. "Troglitazone may ultimately help the millions of people with impaired glucose tolerance, which is the precursor to full-blown diabetes," de Vink said. "Troglitazone may also play a role in treating certain other diabetic conditions, and this theory rests on troglitazone's ability to reverse insulin resistance."

The drug is being studied for use in post-gestational diabetes to see if it can prevent development of Type II diabetes later in life, de Vink reported. It is also being investigated for polycystic ovarian syndrome.

In September, W-L announced the results of an open-label Phase II study of troglitazone in 17 Type II diabetes patients who could not control their diabetes with diet or oral medications and whose blood sugar levels were variable even with insulin therapy. At 12 weeks, daily insulin requirements for all 17 patients were decreased by an average 65%, and seven patients discontinued insulin therapy altogether.

The company also is optimistic about its lipid-lowerer atorvastatin. The agent "lowers the LDL...by as much as 60%" and "triglycerides in hypertriglycerimic patients by as much as 40%" while raising "the beneficial HDL by as much as 12%," de Vink reported. Additional clinical studies are examining atorvastatin's effect on decreasing vascular events and delaying cardiovascular procedures as well as health outcomes.

An NDA for atorvastatin will be filed in July 1996, and the company hopes to launch the product in 1997. "We expect atorvastatin to account for more than $800 mil. at its peak," de Vink said. Warner-Lambert can again point to a recent success in the category: Sandoz Lescol (fluvastatin) posted nearly $100 mil. in sales in its first year on the market ("The Pink Sheet" Sept. 11, T&G-8).

Warner-Lambert expects to file an NDA for cefdinir in June 1996. Clinafloxicin, a quinolone antibiotic, also is under investigation at the company.

Sales for Neurontin (gabapentin) in its first year on the market totaled $45 mil., de Vink reported. The company believes that the anti-seizure medicine eventually will reach $400 mil. in sales. "Combined with Dilantin and our generic drugs for epilepsy, Neurontin helps give us nearly 50% of the U.S. anticonvulsive market," de Vink asserted. Warner-Lambert is pursuing a monotherapy indication, which will be filed in early 1996, and a pediatric epilepsy claim to be filed in 1997.

Accupril sales totaled $228 mil. in 1994 and are expected to increase with the introduction of the ACE inhibitor in Japan in 1995, de Vink maintained. The new product news has not all been good for Warner- Lambert: de Vink acknowledged that physician and patient acceptance for the Alzheimer's treatment Cognex has been "lower than anticipated." However, the company's ancillary program Family Care continues to improve compliance for patients enrolled in the program versus non-Family Care patients.

The theme of new product successes has been important in driving a strong recovery for the pharmaceutical industry throughout 1995. The industry appears to be delivering the solid sales growth seen in the late 1980s and early 1990s, and is being rewarded for it on Wall Street.

Gruntal analysts David Saks and Adam Greene summed up the bullish view toward the pharmaceutical sector in a Sept. 25 report. They predict "tremendous long-term growth opportunities for pharmaceutical companies due to the growing worldwide consumption of drugs owing to a powerful combination of five macro components -- ever-present medical need to treat illnesses, aging population, wider access to medical benefits, advancing technology and exploiting untapped geographical markets."

With its 10% gain in the third quarter, Warner-Lambert is now up 23.7% for the year. That sharp increase, however, is at the low end among pharmaceutical companies tracked by the "F-D-C" Index of NYSE and AMEX stocks. Companies gaining more than 30% in value in the first three quarters of 1995 include: Merck (up 50.8%), Upjohn (up 44.3%, including a 7-point gain in the third quarter in response to the merger talks with Pharmacia); SmithKline Beecham (42.7%), Lilly (36.8%), Schering-Plough (36.1%), American Home Products (34.5%) and Pfizer (33.8%).

The "F-D-C" Index pharmaceutical component gained 9.6% in the third quarter, after a similar gain in the second quarter and a 10.4% jump in the first quarter. The Index is closing in on its peak value in early 1992.

Twenty of the 27 drug stocks tracked by the "F-D-C" Index posted gains for the quarter. The pharmaceutical sector outdistanced broader market indices: the Dow Jones Industrial Average increased 5.1% and the S&P 500 was up 7.3% for the quarter.

The optimistic outlook on Wall Street for drug stocks also reflects the changed political climate on Capitol Hill. Where the health care reform debate hurt the industry on Wall Street in 1993-94, the FDA reform debate is now operating in the industry's favor. Investors appear confident that recent signs of shorter review times and, less tangibly, a more industry-friendly attitude at FDA will continue under the scrutiny of a Republican Congress.

Other congressional efforts that may be harmful to the pharmaceutical industry have not dampened Wall Street's enthusiasm for drug stocks. Congress is investigating the repeal of Sec. 936 tax credits in Puerto Rico. Previous moves to cut the credits have been sufficient to trigger market declines for drug stocks.

The ability of the market to shrug off the latest effort may reflect the relatively generous terms of the "repeal." As currently drafted, the legislation includes a "grandfather" clause that essentially would extend the credit for 10 years at a rate somewhat higher than companies claimed in 1990-94: Wall Street may have been anticipating more aggressive cuts as part of the budget balancing efforts in Washington.

Pharmaceutical companies also are not making much visible progress on eliminating Medicaid drug rebates as part of the move to turn Medicaid into a state block grant program. The Medicaid bills before Congress would actually be worse somewhat for the industry than the status quo: states would be given explicit authority to seek supplemental rebates on top of the federal formula.

The reaction to the Pharmacia & Upjohn merger announcement shows the renewed interest by investors in product pipelines as a key to valuation of pharmaceutical companies.

The initial reaction following the merger announcement was a sharp drop in Upjohn shares: investors had heard rumors of Pharmacia's interest and were expecting a buyout offer at a hefty premium as has been seen in other recent industry mergers. An analysts briefing by the companies on Aug. 21, however, led to a rebound in the share price, as investors warmed to the logic of the merger. A primary focus of the briefing was the combined pipeline of the proposed new firm ("The Pink Sheet" Aug. 28, p. 11).

Warner-Lambert's new product pipeline also may be valued by investors as bait to attract a takeover bid. Warner-Lambert shares gained more than 5 points in September after the announcement of the Upjohn/Pharmacia merger provided more fuel for takeover speculation.

The run-up in Warner-Lambert has come despite a reduction in expectation for earnings growth from the company. According to Zacks Investment Research, the mean predicted annualized growth rate for the next five years among 17 analysts following the stock is 7.9%. Six months ago, analysts estimated an 8.5% growth rate.

One continuing drag on earnings growth at Warner-Lambert is the fall-out from its 1993 consent agreement with FDA on compliance with current Good Manufacturing Practices regulations at its six facilities. The company continues to make frequent appearances in the FDA "Enforcement Report" for recalls from its New Jersey and Puerto Rico plants.

At the time the consent agreement was announced, the company estimated a loss of approximately $150 mil. in sales revenues from the hiatus in production during recertification of products ("The Pink Sheet" Aug. 23, 1993, p. 10). However, at the Bear Stearns conference, de Vink estimated that the consent decree "will on the present value basis cost us more than a $1 bil."

A consent agreement between Lilly and FDA over manufacturing issues signed in August had no appreciable impact on Lilly shares as the stock gained more than 12 points after the agreement was signed to close the quarter up 14.5% to 89-7/8.

The contrast between the Lilly agreement and the Warner-Lambert decree two-and-a-half years earlier may be tangible evidence of the changes at FDA in response to the new political climate. The agreement requires Lilly to review at least 10 products to document unapproved manufacturing changes but does not require the company to cease production or withdraw any products during the review ("The Pink Sheet" Aug. 21, p. 3).

The direct cost of the agreement to Lilly will apparently be quite small, at least at first. The company was ordered to pay $375,000 in costs and will have to reimburse FDA inspectors for monitoring compliance with the decree. As the Warner-Lambert experience shows, however, the long-term costs of the decree could escalate depending on the extent of concerns raised by the company's compliance audits.