The Pfizer Pfolder

By Matt Richey (TMF Verve)

ALEXANDRIA, VA (June 10, 1999) -- The "sales associates" are at it again. Shares of Pfizer (NYSE: PFE) have been free-falling for two months, off more than 30% from all-time highs reached in April. So now that the stock is thoroughly beaten down, Wall Street's herd of so-called analysts, today, raced in to downgrade and cut their estimates by a few pennies. All of this was prompted by yesterday's announcement by the Food and Drug Administration (FDA) of 14 cases of acute liver failure that were "strongly associated" with antibiotic Trovan. As reported in today's Lunchtime News, the FDA is now urging doctors to limit use of Trovan to patients suffering from life-threatening infections.

So, how big of a deal is this news? That's the question I pondered yesterday when the story broke. A quick glance at Pfizer's first quarter results by product segment confirms that Trovan made up less than 2% of revenues. On the surface, then, it seems that the market clearly overreacted. But, since I'm not an M.D., and I have only the most basic understanding of Trovan's uses, I turned to the Pfizer message folder where many medical experts regularly post their thoughts.

The first interesting post I found was from a Trovan user, dlcasey, who writes:

"...in fact at one time I used quite a bit of Trovan and for long periods of time (4-8 weeks at a time!). I had no complications from it, but am very wary now and certainly won't be using it anytime soon... at least to the degree I used to."

It looks like the FDA's scary warnings will cause at least some users to cut-back or even eliminate use of the drug. That tells us a little, but let's keep digging. One poster suggested that the market may be pricing in the possibility of lawsuits based on Trovan-related deaths. Could that explain the market's reaction? Not so, according to SlyAce, an attorney who claims to have been involved in representing defendants in the breast implant and Phen-Fen litigations. Here's his take on potential litigation risk from the Trovan news:

"...keep in mind the fact that plaintiff's lawyers will sue over anything (e.g., Viagra) in the hope of discovering incriminating documents demonstrating that the manufacturer sought to minimize known risks, but so long as this did not happen, there is little litigation risk. Also, courts are trending toward excluding speculative evidence of causation such as that used several years ago in the breast implant litigation. Allergic reactions are hard to fake, so unless there are lots of potential plaintiffs, most plaintiffs' lawyers won't bother with this one."

Very nice to have a lawyer's opinion on the matter, but what about the physicians? They're the ones who control the prescription pads. One of the FDA's new conditions for Trovan use is that patients can only begin treatment in either a hospital or nursing home under a doctor's supervision. One physician on the board, longtrm, says that the FDA's restriction on inpatient use is the critical factor:

"My practice is currently largely outpatient. Some physicians in my group are using a lot of Trovan on the inpatient side (especially the pulmonolgists - IV for pneumonia). We have been extensively detailed and sampled by drug representatives for outpatient use of oral Trovan. Outpatient indications include bronchitis, sinusitis, diabetic foot infections, etc. This is where I see Trovan use taking a hit. If it's not a life-threatening infection we can use Zithromax or Augmentin or Cipro or Keflex etc., etc."

But not everyone agrees with this assessment. My understanding of the FDA's ruling is that although Trovan use must be started on an inpatient basis, it can continue thereafter for a patient that needs continued treatment outside of a hospital. Another physician, htharvey, also believes that outpatient Trovan use will continue:

"As a primary care MD, mainly outpatient, I continue to totally support Trovan. It has profound broad spectrum activity, and is as potent orally as by IV. In diabetic foot infections and severe cellulitis and pneumonia, it is excellent. Serious infections are complex and often polymicrobial. Sometimes, your first treatment may be your only chance for cure.

"In these days of managed care, the pressure is on physicians to keep patients out of the hospital. I predict continued widespread use of outpatient Trovan.

"Allergy is unpredictable by definition. How can you be liable for the unknown? The miniscule risk of liver injury is far outweighed by Trovan's potency.

"Trovan has always been indicated only for serious infections. The FDA's decision is a non-event medically. Pfizer's response is accurate and appropriate. My fear with Trovan is overuse and the development of resistant secondary infections. The FDA's action will help minimize this."

Posts like these are why the Pfizer board is one of my favorites. The convergence of advancing science and aging demographics continue to make the pharmaceutical industry one of the best sectors for long-term investors' dollars. Pfizer has been a successful engine of shareholder wealth for years now, as confirmed by this long-term chart. With negative sentiment swirling about this great company, investors may want to take a visit to the Pfizer board and see if the current worries are overblown.

06/10/99 Close

Stock Change    Bid
AXP   -2        123.13
CHV   +  5/8     93.25
CSCO  -3 5/16   110.44
EK    +1 1/2     71.25
GM    +  3/16    64.69
GPS   -  3/8     64.69
INTC  +2 1/4     55.38
KO    -  7/8     66.13
MSFT  -2 7/16    79.88
PFE   -4 13/16   99.94
SGP   -2 1/4     45.25
TROW  -1 23/32   33.28
XON   -  1/2     79.63
YHOO  -1 5/8    144.75

                  Day     Month  Year    History
        R-MAKER  -1.58%  -1.05%   3.60%  31.09%
        S&P:     -1.19%   0.09%   6.32%  31.54%
        NASDAQ:  -1.38%   0.57%  13.31%  50.32%

Rule Maker Stocks

    Rec'd    #  Security     In At       Now    Change
    2/3/98   48 Microsoft     39.13     79.88   104.10%
   6/23/98   34 Cisco Syst    58.41    110.44    89.07%
    5/1/98   55 Gap Inc.      34.37     64.69    88.21%
   2/13/98   44 Intel         42.34     55.38    30.80%
    2/3/98   22 Pfizer        82.30     99.94    21.43%
   5/26/98   18 AmExpress    104.07    123.13    18.31%
   2/17/99   16 Yahoo Inc.   126.31    144.75    14.60%
    2/6/98   56 T. Rowe Pr    33.67     33.28    -1.16%
   2/27/98   27 Coca-Cola     69.11     66.13    -4.32%
   8/21/98   44 Schering-P    47.99     45.25    -5.72%

Foolish Four Stocks

    Rec'd    #  Security     In At     Value    Change
   3/12/98   20 Exxon         64.34     79.63    23.77%
   3/12/98   20 Eastman Ko    63.15     71.25    12.83%
   3/12/98   15 Chevron       83.34     93.25    11.89%
   3/12/98   17 General Mo    72.41     64.69   -10.66%

Rule Maker Stocks

    Rec'd    #  Security     In At     Value    Change
    2/3/98   48 Microsoft   1878.45   3834.00  $1955.55
   6/23/98   34 Cisco Syst  1985.95   3754.88  $1768.93
    5/1/98   55 Gap Inc.    1890.33   3557.81  $1667.48
   2/13/98   44 Intel       1862.83   2436.50   $573.67
    2/3/98   22 Pfizer      1810.58   2198.63   $388.05
   5/26/98   18 AmExpress   1873.20   2216.25   $343.05
   2/17/99   16 Yahoo Inc.  2020.95   2316.00   $295.05
    2/6/98   56 T. Rowe Pr  1885.70   1863.75   -$21.95
   2/27/98   27 Coca-Cola   1865.89   1785.38   -$80.52
   8/21/98   44 Schering-P   2111.7   1991.00  -$120.70

Foolish Four Stocks

    Rec'd    #  Security     In At     Value    Change
   3/12/98   20 Exxon       1286.70   1592.50   $305.80
   3/12/98   20 Eastman Ko  1262.95   1425.00   $162.05
   3/12/98   15 Chevron     1250.14   1398.75   $148.61
   3/12/98   17 General Mo  1230.89   1099.69  -$131.20

                              CASH     $70.09
                             TOTAL  $31540.22

Note: The Rule Maker Portfolio began with $20,000 on February 2, 1998, and it adds $2,000 in cash (which is soon invested in stocks) every six months.

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