BREAKFAST WITH THE FOOL
Wednesday, November 3, 1999
"A leader is a dealer in hope."
-- Napoleon Bonaparte
Warner-Lambert and American Home Products Discussing Merger
Richard McCaffery (TMF Gibson)
Drug makers Warner-Lambert (NYSE: WLA) and American Home Products (NYSE: AHP) are discussing a $65 billion merger that could end up being the largest pharmaceutical deal in history, The Wall Street Journal reported.
An announcement could be made as soon as Thursday, though no agreement has been reached and negotiations could break off at any time, according to the Journal.
The merger would bring together two of the pharmaceutical industry's top 10 companies. Warner-Lambert makes the best-selling cholesterol-fighting drug Lipitor as well as household favorites Listerine and Neosporin. American Home Products, which has struggled recently because of lower agricultural products sales and a $4.75 billion charge for settlements related to its diet drugs Redux and Pondimin, makes Robitussin, Preparation H, and Advil.
Through the first nine months of the year, American Home Products sales (adjusted for one-time events) were flat, though the company has a healthy pharmaceutical product line. Three of its best-selling pharmaceutical products are Premarin (an estrogen replacement drug), Effexor (an antidepressant), and Enbrel (for rheumatoid arthritis).
In September, American Home Products received FDA approval for two new drugs: Sonata, a sleeping aid, and Rapamune, used to prevent organ rejection following kidney transplants. A merger with Warner-Lambert would help boost sales based on the strength of Lipitor.
For Warner-Lambert, the merger would bring fresh products to market. Much of the company's recent growth comes from sales of Lipitor, and though sales are expected to be robust, pharmaceutical companies need a broad array of drugs to sustain growth.
In addition, the combination would give the companies added bulk to bat with the pharmaceutical sluggers, companies like Merck (NYSE: MRK) and Johnson & Johnson (NYSE: JNJ). Since drug development is amazingly costly and time-consuming, deep pockets are critical for long-term success.
News to Go
PC manufacturer Packard Bell NEC Inc., owned by computer and microchip manufacturer NEC (Nasdaq: NIPNY), is laying off almost 90% of its workforce and pulling out of the U.S. PC market as fierce competition contributes to major losses.
Leading Internet portal company America Online (NYSE: AOL) is investing $30 million in video rental king Blockbuster (NYSE: BBI) as part of a three-year co-marketing deal. In addition, the money will be used to spur delivery of broadband content, which basically means the companies want consumers to be able to view movies online.
Biopharmaceutical firm Chiron (Nasdaq: CHIR) is scaling back research and development spending to improve earnings. In addition, the company announced plans to repurchase up to 4 million shares of stock to offset the effects of its stock option plans.
Biopharmaceutical healthcare firm Biogen (Nasdaq: BGEN) has stopped all trials of its experimental immune-response disease drug Antova after it produced blood-clotting side effects in patients. The company had suspended most of the drug trials last week and pulled the plug yesterday.
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