Why Wyeth Still Has the Sweats


By Amy Barrett Investors in Wyeth (WYE), formerly American Home Products, have been heaving sighs of relief lately. The stock took a pounding in July when a National Institutes of Health study revealed that one of Wyeth's top-selling products, the hormone-replacement therapy drug PremPro, could harm women.

Shares fell from around $50 prior to the July 9 announcement to as low as $30. They have since rebounded to around $37 on the belief that the dizzying slide in prescriptions for Wyeth's HRT franchise was over and that the damage wasn't as bad as expected.

Investors' vote of confidence may have been premature. Some analysts are now warning that the fallout from the NIH study, which found that PremPro produced a small but measurable increase in the risk of breast cancer in women who used it for more than four years and an increased chance of heart disease with just one year of use, is far from over.

"A CRAPSHOOT." While some on Wall Street have been expecting Wyeth's earnings to grow well above the industry average over the next few years, concern is mounting that the company's performance could fall short. Investors are looking to Wyeth CEO Robert Essner -- who declined to talk to BusinessWeek -- for clarification. Essner is expected to give guidance on Wyeth's outlook in late September.

"It's a bit of a crapshoot as to what earnings will look like over the next few years," warns Lloyd S. Kurtz, senior vice-president at money management firm Harris Bretall Sullivan & Smith, which sold all its Wyeth stock after the PremPro data was released. The firm held 930,000 shares as of midyear. SG Cowen Securities analyst Stephen M. Scala figures sales will climb 6% this year, to $14.8 billion, while net income will increase 15%, to $3.3 billion. But he warns that next year's earnings growth rate could be cut in half as HRT sales decline.

Another concern is that some of Wyeth's old problems may still be haunting it. The Madison (N.J.) outfit has already paid out $12.2 billion in legal costs and settlements stemming from the market withdrawal of its diet drugs Pondimin (the "fen" in the diet-drug combination fen-phen) and Redux. Now, JP Morgan Securities analyst Carl Seiden is warning that Wyeth may need to take another charge of up to $1 billion to cover higher than expected costs from the global settlement.

DAMAGE CONTROL. Those troubles would be compounded by the continued slide in Wyeth's $2.1 billion HRT franchise. These treatments, including PremPro and Premarin, another drug still under study, accounted for 15% of Wyeth's $14.1 billion in sales last year -- but as much as 30% of profits. Despite an aggressive damage-control effort, including a blitz by Wyeth's sales representatives, prescriptions for its HRT drugs have plummeted more than 20% since the study was released.

Lehman Brothers analyst C. Anthony Butler warns that the HRT franchise will continue to deteriorate because many women now will use the drugs for shorter periods or skip HRT altogether. He figures Wyeth's HRT business could drop to just $1.3 billion by 2006.

Those numbers could be even worse if the ongoing NIH study on the use of Premarin, which by itself generates $1.2 billion in sales, raises more red flags. But even if Premarin is ultimately given a clean bill of health, rival Barr Laboratories (BRL) is trying to bring a generic version of Premarin to market. If it's successful, that would erode Wyeth's HRT sales further.

JUST CAN'T QUIT. If anything can ameliorate the devastating impact of the NIH study, it's the dearth of alternatives to HRT. Women may be scared by the new study, but plenty suffer so much with the symptoms of menopause that they'll still use PremPro or Premarin.

Says Dr. Ruth Shaber, director of women's health services at Kaiser Permanente in Northern California and a practicing obstetrician/gynecologist: "I would say 75% or so in my practice tried to stop. Of the 75% who tried stopping, it seems like half have gone back on." Many of her patients, in fact, had little choice: "They are miserable" without the drug, she says.

That lack of alternatives, along with Wyeth's nearly 70% control of the HRT market in the U.S., has allowed the company to hike prices on PremPro and some versions of Premarin by more than 5% recently, according to Prudential Securities analyst Dr. Tim Anderson. But it will take a lot more than that to remedy Wall Street's anxiety about Wyeth. Amy Barrett is BusinessWeek's Philadelphia bureau manager


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