Subject: Drop in Tagamet Sales Puts SmithKline In Danger Date: Published: 1/13/89 (132 lines) Source: Wall Street Journal. Copyright Dow Jones & Co. Inc. Bitter Pill: Drop in Tagamet Sales Is Putting SmithKline In Danger of Takeover --- Ulcer Drug Made Company Big and Rich, but What Can It Do for an Encore? --- Much Dismay on Wall Street --- By Richard Koenig and Randall Smith Staff Reporters of The Wall Street Journal PHILADELPHIA -- Henry Wendt's timing seemed impeccable. The handsome Princeton graduate became president of SmithKline Beckman Corp. in 1976, the year the drug maker introduced Tagamet, an ulcer medicine that became, for a while, the biggest-selling prescription drug of all time. It was, in Mr. Wendt's words, "a pharmaceutical gusher," and for years his biggest worry was meeting demand. "Make as much as you can," he told production executives. "As much as you can!" Tagamet transformed sleepy SmithKline into an industry giant and a Wall Street favorite. It all seemed too easy. And, perhaps, it was. Now, the 55-year-old Mr. Wendt is fighting for his corporate life amid charges that SmithKline has stumbled as it prepared for the day when the Tagamet gusher would taper off. An ambitious research effort has failed so far to yield another blockbuster drug. And SmithKline lost track of Tagamet's rate of sales, shocking Wall Street last June 16 by announcing that the sales, and the company's profit, were about to fall. The upshot: The eighth-largest U. S. drug company, with a market value of $6.5 billion, has become a takeover candidate. Its stock has gyrated in heavy trading recently after several analysts said it faced a takeover threat and might sell one or more of its nondrug businesses. Beecham Group PLC of London, one of two rumored suitors, declines) to comment. The other, Takeda Chemical Industries Ltd. of Japan denies having any interest in acquiring SmithKline. But SmithKline's stock rose $9.50 to $50.75 a share on triple the normal trading volume in the first two weeks of December. Activity picked up again this week. The stock closed yesterday at $52.375 a share, up $1.875, on two million shares. "SmithKline is in big trouble," says Barbara Ryan, a drug analyst at Bear, Stearns & Co. "They've overstated and underperformed, and they haven't managed the Tagamet franchise well. I don't think they're going to remain independent." Mr. Wendt acknowledges that the company has suffered "great pain and embarrassment" because top management was just as surprised as outside observers by the sales slowdown. "Look, the company is under pressure," he says. "When I took the job, I knew I had to steer the company through the post-Tagamet-success transition. And I am not ready to declare success or victory or defeat." Rapid success followed by deep disappointment is a recurring phenomenon in the drug business, in which big-selling drugs come and go. Drug-industry executives note that success in research comes not only from organization and brains but also from sheer luck and that plenty of other drug companies have had trouble living up to their own success. But where many of them used to say, "We're looking for another Tagamet," they now say with a shudder, "I hope we don't pull a SmithKline." Tagamet, pioneered in a SmithKline research center near London, works by inhibiting the release of ulcer-causing stomach acid. Intended mainly for peptic ulcers, Tagamet pills have also been gulped by millions of people hoping to relieve all sorts of vague pains, from neck to navel. In 1987, it accounted for one-fourth of SmithKline's $4.33 billion in sales and nearly half of its $570.1 million in net income. But critics say SmithKline has mismanaged Tagamet against Glaxo Holdings PLC, an upstart British concern whose competing drug, Zantac, has surpassed Tagamet among ulcer medications. The first versions of Zantac, introduced in the early 1980s, didn't have to be taken as often and had reduced side effects. Moreover, Glaxo struck a surprising marketing deal with Hoffmann-La Roche Inc.: Both would promote Zantac in the U. S. under the same product name. Glaxo could thus go head-to-head with SmithKline on the American company's home shores. And now the attack on Tagamet has broadened. Merck & Co. and Eli Lilly & Co. now sell their own drugs resembling Tagamet. A product of Marion Laboratories Inc., though it falls into a different drug class, has made substantial inroads, too. About 4,500 sales representatives in the U. S. are selling prescription ulcer drugs, and only about one-third of them are pushing Tagamet. Meanwhile, SmithKline has tried to develop various "son of Tagamet" compounds, but they all were dropped as unacceptable side effects showed up, sometimes tormentingly late in clinical trials. Only last November, SmithKline stopped testing a would-be Tagamet backup. SmithKline says Tagamet's side effects became better-known earlier because it was in wider use and contends that Zantac currently isn't any safer. Still, many doctors think about the side-effect issue to the disadvantage of Tagamet. And just this week, European researchers said an entirely new type of ulcer drug to be sold by Merck works even better than Zantac. Mr. Wendt concedes that SmithKline "underestimated" Glaxo's abilities. "We would be in a much better position today if we had retained leadership," he says. "Glaxo got away with positioning their product as safer in the early years of their introduction." Many analysts say SmithKline has also failed to develop a new blockbuster drug to succeed Tagamet, which could face competition from generics in 1994, when its U. S. patent protection expires. True, the company has 28 drugs under development, up from a handful in 1980, for ailments including asthma, Parkinson's disease, AIDS, the flu and, of course, ulcers. The first 1980s project to hit the market, a genetically engineered hepatitis vaccine, shows commercial promise. And two drugs for heart disease and hypertension are under regulatory review. [213 lines irrelevant to AIDS have been removed. -- sysop] [This article is made available here by Dow Jones Co. for the personal and non-commercial use of callers to this bbs, in the hope that it will be of some help to those who are suffering from the disease and others who are seeking to help them.]