Pubdate: Thu, 04 Nov 1999 Source: San Jose Mercury News (CA) Copyright: 1999 San Jose Mercury News Contact: 750 Ridder Park Drive, San Jose, CA 95190 Fax: (408) 271-3792 Website: http://www.sjmercury.com/ DRUG GIANTS SEE MERGER AS RX TO GROW NEW YORK - American Home Products Corp. and Warner-Lambert Co. announced a $71 billion merger today that would create the world's largest prescription-drug maker. American Home is the company behind such household names as Advil, Robitussin and Chapstick and the top-selling hormone replacement drug Premarin, the world's most prescribed medicine. But it is struggling as a result of lawsuits and product safety questions and has been flailing about for a merger partner after two previous deals collapsed. Warner-Lambert makes Certs mints, Schick razors and the blockbuster cholesterol drug Lipitor. It has been the nation's fastest-growing drug company for the past two years. The new company will be called AmericanWarner Inc., according to a person familiar with the talks who spoke on condition of anonymity. ``They both need more depth in research and distribution and a stronger global presence,'' said Linda Miller, portfolio manager for the John Hancock Global Health Sciences Fund, which owns about 150,000 shares of each company. The stocks of both companies rose Wednesday after both parties confirmed that they were in merger talks. Shares of other drug makers also rose as investors anticipated a new round of deal-making. Combined, American Home and Warner-Lambert would have sales of $23.7 billion2E Their prescription-drug business would surpass the current leader Swedish-Anglo concern AstraZeneca PLC, which makes Prilosec, a heartburn drug that had the highest sales of any drug on the market. Including over-the-counter medicines and other health care products, a combined American Home and Warner-Lambert would rank third in worldwide sales behind No. 1 Merck & Co. and No. 2 Johnson & Johnson. By joining forces, drug companies can spread the cost of developing new drugs, while increasing the sales force needed to market old and new products. The companies expect a total cost savings of $1.2 billion over three years. In addition, the companies are under pressure from consumers and Congress to slow the rising prices of their medicines. Last year, wholesale prices for 50 prescriptions commonly filled by the elderly rose by 6.6 percent even though the overall inflation rate that year was just 1.6 percent, according to the study released Wednesday by the consumer group Families USA. American Home Product's operating profits have been sluggish this year as the company has faced a rash of safety and legal troubles with its drugs. Last month, the company had to yank its childhood diarrhea vaccine from the market after it was linked to severe bowel obstruction in several dozen infants. Also last month, the company reached a $4.75 billion settlement with thousands of women who said they were injured by the diet drugs Redux and Pondimin. Despite its troubles, American Home has a plethora of new drugs, and others awaiting regulatory approval. Those include the sleeping pill Sonata, the ulcer pill Protonix, and a childhood vaccine to prevent pneumonia and ear infections. In contrast, Warner-Lambert's laboratory is relatively empty, analysts say. Its next big hope is a drug to treat epilepsy and other central nervous system disorders. Warner-Lambert, though, does have Lipitor, which is expected to garner $6 billion in sales in 2002, after the drug is launched in several more countries including Japan. American Home Products tried twice to find a partner last year, but negotiations fell apart with SmithKline Beecham PLC and later with Monsanto Co. ``The major stumbling block in the last two deals was there was ambiguity about who was going to be CEO,'' said Kent Blair, an analyst with Donaldson, Lufkin & Jenrette. Under terms of the new deal, American Home Products' top executive, John Stafford, 62, will be chairman of the combined firm for 18 months. Warner-Lambert's Lodewijk J.R. de Vink, 54, will be CEO immediately and will assume the chairman's position after Stafford steps down. The merger will be structured as a stock swap, with shareholders in each company controlling half of the shares in the new company. Each company will name 10 members of the new board of directors. The two companies have similar cultures and their headquarters are just 10 miles apart in New Jersey. American Home is in Madison and Warner-Lambert is in Morris Plains. The new company will be based in American Home's facility. Warner-Lambert also has been looking for partners to expand its business. Earlier this year, the company paid $2.1 billion to acquire Agouron Pharmaceuticals, which makes drugs for cancer, viral diseases and eye diseases. Shares of American Home Products jumped 11 percent, or by $5.63, to $56 on the New York Stock Exchange, where Warner-Lambert's stock rose almost 7 percent, or by $5.38, to $83.81. Investors also started placing bets on the next companies that could be headed for the altar. The biggest stock gainers Wednesday included Monsanto, Eli Lilly Co., Schering Plough Corp. and Pharmacia & Upjohn Co. Center is protected by the copyright laws of the United States. The repurposing of any copyright-protected material. - --- MAP posted-by: Derek Rea