American Home Products Study Spurs Mixed Ratings Changes

NEW YORK (Dow Jones) -- Wall Street greeted American Home Products Corp.'s (AHP) study on hormone replacement therapy with mixed results.

At least two analysts changed their ratings on the pharmaceutical giant, but the changes weren't consistent.

Donaldson Lufkin & Jenrette Securities Corp. cut its rating on the Madison, N.J., company to market perform from top pick, while Merrill Lynch & Co. increased its near-term rating to buy from attractive.

The study, viewed as a disappointment for the company, has raised questions about the common belief that hormone replacement therapy helps women after menopause reduce their risk of heart attacks and other consequences of coronary-artery disease.

American Home Products sells the blockbuster estrogen-replacement product, Premarin, and an estrogen and progestin mix, Prempro. Premarin and drugs containing Premarin had more than $1 billion in sales last year.

The four-year $40 million study, published in Wednesday's Journal of the American Medical Association, randomly selected 2,763 postmenopausal women with coronary heart disease to receive estrogen and progestin or a placebo.

The result was that the hormone combination didn't decrease the women's risk of heart attacks, at least in the first two years of treatment. In fact, as reported in Wednesday's Wall Street Journal, the study showed that women taking the hormones appeared to have a higher risk of heart attack during the first year of treatment, although a lower risk after two years on the medicine. The study looked only at women with diagnosed heart disease, so hormone therapy's effect on healthy women may be different.

In its report, Merrill Lynch said that "we do not believe this is going to have a substantial impact on our outlook for the Premarin line of products in coming years."

Lehman Brothers Inc. analyst Anthony Butler agreed, stating that "while the results were disappointing for the trial, it does not affect our Premarin family revenue estimates."

Butler expects Premarin sales to grow 14.5% annually over the next five years.

An American Home Products official wasn't immediately available to comment.

Had the results of the study been positive, Butler said, his sales estimates might have edged higher. He rates the stock a buy, based on the long-term potential of the company.

"We're bullish on the Monsanto merger with American Home," Butler said, referring to American Home Products' pending acquisition of Monsanto Co. (MTC).

Butler said he is also bullish on American Home Products' Celebra drug, a Cox-II inhibitor for arthritis and pain. Merrill Lynch said the drug should be "the biggest new product launch of 1999."

In its note, Merrill Lynch said American Home Products is a cheap stock with a compelling new product pipeline. The company also has the potential to deliver significant cost savings in the merger with Monsanto, the firm said. On average, the company should deliver 16% earnings growth over the next five years, including the anticipated dilution next year, Merrill Lynch estimates.

The analyst who issued Donaldson Lufkin's downgrade note on American Home Products wasn't available for comment.

Trading in American Home Products stock didn't move significantly on the news. Shares recently traded at 52 3/8, up 1 1/4, or 2.4%, on volume of 3.7 million shares. The daily average is 3 million shares.

By Melanie Trottman

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