Wyeth's Waiting Game

"It's not easy being green." -- Kermit the Frog

With all due respect to Kermit, it hasn't been particularly easy being Wyeth (NYSE: WYE  ) , either. In addition to huge ongoing diet-drug litigation, the company has been facing increasingly tough markets for some of its top drugs. For those who've held on to the shares, it's been a waiting game -- waiting for the legal resolutions, new products, and better growth.

Although the wait isn't over yet, the end may be in sight.

Revenue for the fourth quarter came in at $4.6 billion, up about 7% over last year, and net income (before charges and reserves) grew a like amount. Modest fourth-quarter growth was due to tough markets for many of the company's drugs. Effexor, an antidepressant that contributes roughly 20% of the company's revenue, saw its growth slow to just over 1% in the fourth quarter and Protonix, the company's second-largest contributor, was actually down by about 1% for the quarter.

Growth for 2005 also looks to be rather modest. According to management's guidance, revenue should grow somewhere between 5% and 9% in 2005, and earnings per share should come in at $2.70-$2.80 -- below Wall Street expectations of $2.89.

All that said, there are some positives for the quarter. While the company took another $4.5 billion in charges for diet-drug litigation, a resolution could at last be in sight. Management was cautiously optimistic that it might be on a path that would allow the company to settle the "opt-out" cases, as well as more fully clarify the ultimate liability in the national settlement. So far, the company has reserved about $21.1 billion for the settlements and has paid out roughly $13.9 billion.

It's also not as though Wyeth's cupboard is bare. Tygacil, a new antibiotic expected to be approved in 2005, could be a billion-dollar drug, and the company has six other late-stage drugs that could reach the market from 2006 to 2007.

Anyone holding or looking to buy these shares needs to understand that it will take time to get growth back on track, and there could be setbacks along the way. Although Wyeth could post solid growth in 2006 and beyond, much work remains to be done. Still, investors looking for a pharmaceutical turnaround story may be attracted to Wyeth, since much of the bad news is already known. With a little more patience, Wyeth may go from looking a bit green to making some green.

Fool contributor Stephen Simpson, CFA, has no ownership interest in any stocks mentioned.