Caution: Bumpy Market Changes Ahead in
Pharmaceuticals

By:  Matt Groesbeck, Long and Short Reports Staff Writer
March 28, 2002

Watch out: a $5 billion industry will soon split in half.

Prescription insurance companies won a major battle against pharmaceuticals this month the moment Schering-Plough (SGP: NYSE) announced its Major League Baseball endorsed Claritin, an allergy medication with more than $2 billion annual revenue, is headed over-the-counter at year's end.
(http://www.sgp.com/news/2002/business/20020308.html)

Other Claritin competitors, Allegra (Aventis, AVE:NYSE)  and Zyrtec (Pfizer, PFE:NYSE), may be OTC-bound by second quarter 2003 before they're literally pushed there by the FDA, if not dropped on their heads first by insurance carriers. Cue the end of the golden age of second generation non-drowsy antihistamines ---Claritin, Allegra and Zyrtec. The industry will take a beating in the transition. Analysts say market share will  dramatically decrease by more than 50 percent, some of which may be impossible to recoup on OTC store shelves.

That's why Schering-Plough is getting a jump on things now by not only releasing Claritin over-the-counter, but wisely patenting a new third-generation prescription metabolite of Claritin, Clarinex, which is touted as more effective than the original.

The press release: "The proposed conversion of Claritin to OTC status represents a strategic business and medical decision...to introduce a safe, non-sedating antihistamine into the OTC marketplace; position these products as the premier brands in the prescription and OTC categories, respectively; and maximize the combined value of the CLARITIN and
CLARINEX brands."

Duh.

These measures are proof that Schering-Plough has no doubt looked for ways to cut their losses ever since insurance carrier Wellpoint complained to the FDA in 2000 about the high prices of non-drowsy antihistamines. What was argument of big insurance? Put simply, they asked 'If Claritin, Allegra and Zyrtec are so safe, so non-sedating and better than anything we have now over-the-counter in terms of allergy drugs, why in heaven's name aren't they over-the-counter too? Why can't more people have access to these drugs?' The match that was struck lit a big fire with the FDA and the media mid-2001 if you recall. The heat was on to make Claritin, Allegra and Zyrtec available OTC.

In other words, the overzealous marketers of the pharmceutical giants got burned. Sure they were overly arrogant about their product, but they were innocently touting the factual benefits of their drugs. Oops. Apparently they said too much. Now their product is headed OTC. A similar situation may exist with this year's patent expiration of the stomach-acid inhibitor Prilosec (AstraZeneca, AZN:NYSE).

But marketers are fighting back to keep as much market share as possible. Take Schering-Plough's case for instance. By establishing Claritin's presence over-the-counter first, Schering-Plough may be able to claim a special place in the minds of allergy-ridden consumers and command premium shelf space. They had to get to the OTC market first before Pfizer and Aventis to gain the advantage. And it was even more imperative
that they hit the market before generic competition from Johnson & Johnson and American Home Products strips them even more after the prized Claritin patent expires December, 2002.

But by developing the prescription metabolite Clarinex in the same non-drowsy market Claritin was once in, Schering-Plough can soften their losses. Their marketers are keen on exposure, of course, so you'll soon be seeing ads on both drugs for both markets, if you haven't already.

Claritin posted sales of $2.7 billion last year, but is expected to lose a good portion of future revenue to copycat generic products marketed by Johnson & Johnson, American Home Products and generic store brands.

The antihistamine market ranked 11th largest in the world in 2000, worth $5.5 billion. It grew 18 percent over 1999 in US dollar terms, according to IMS HEALTH's World Review.

Claritin has led this corner of the prescription allergy industry with a 39 percent market share, which will obviously tank soon after it's released OTC. Look for market share to plummet even more as Claritin competes head-to-head with generics as well. Zyrtec (Pfizer) follows with 21 percent of the market, and Allegra (Aventis) ranks third with a 15 percent market
share.

As reported in Schering-Plough press releases on Dec. 21, 2001, and Jan. 24, 2002, they continue to expect "to achieve a percentage increase in earnings per share in the low double-digits."

Projections aside, the bottom line for Schering-Plough stock is a hard one to read. I believe the OTC demand is there for Claritin, and Schering-Plough is doing well to reach their marketing window. The key to living up to pro forma is pricing it right.

When Claritin is released OTC this November, it may be priced anywhere from $15 to $25 for a month supply. Generics may be priced two to five dollars cheaper. That may be a bargain considering the only other antihistamines available without a prescription can inflict that dreaded enemy of day-time functionality: drowsiness. The culprits? - Benadryl
(Diphenhydramine), Tavist (Clemastine), Chlor-Trimeton (Chlorphenarimine), Bromfed (Brompheniramine).

Current OTC allergy drugs act with what health professionals call "anti-cholinergic" side effects, otherwise known as somnolence, dizziness, drowsiness and other central nervous system effects. And even though some of these brands market themselves in "non-drowsy" incarnations only after including the decongestant/stimulant pseudoephedrine, there's a good
chance sedation may override the stimulant effect anyway. It's either that or you're wired depending on how your body responds, a catch-22 with non-selective, first-generation allergy drugs.

That's why the Claritin release is such a revelation for the OTC antihistamine market. Finally there will be a drug that is truly non-drowsy and available at any drug store. Insurance companies are loving it. They won't have to dish out the $5 billion or more to pay for prescription Claritin and its followers. For the allergy antihistamine industry to rebound, third-generation drugs stronger than Clarinex will have to be developed and milked, just as Claritin was.

The removal of Claritin from insurance company formulary lists may prevent some state welfare patients from getting the drug for a $1 co-pay, forcing them to dish out the cash to purchase Claritin over-the-counter. The easy remedy for welfare patients, of course, is to ask their doctors to prescribe Clarinex which would be paid for, (but that would only increase welfare abuse and increase insurance company premiums, but that's an entirely different social dilemma.) Which reminds me - time to pay taxes this month. And it's allergy season.

Schering-Plough shares closed yesterday at $31.20.

Hey Dude, Where's My Earnings?: Dell Reports Q4

By Matt Groesbeck, Long and Short Reports Staff Writer
February 17, 2001

Right on target, dude.

After the closing Valentines Day bell, Dell Computer Corp  (Nasdaq:  DELL). reported fourth quarter earnings above the projected mark with $8.1 billion in sales revenue, although down 7 percent from 2001 fourth quarter reports.

And with the Feb. 11 announcement of a fan-requested website for Dell's right hand "dude" in marketing, 21-year-old actor Benjamin Curtis who plays "Steven" on Dell television spots, Dell's heart to sell PC's continues to set the pace of the digital pulse of the nation.
( http://www.cnn.com/2002/SHOWBIZ/TV/01/31/dell.guy/index.html )

The website, at www.dell4me.com/dude, was created at customer requests, and is proof that Dell's marketing efforts have successfully connected with the public. The newest "Dude" spot can be seen at the fan website, as
well as information on the Dell system that Curtis uses, an Inspiron  4100 notebook.

From Dell's "Dude" Feb. 11 press release: "The Steven character has been a terrific messenger for Dell ...and through customer response to the advertisements is a great advocate for what a consumer is looking for in a
computer company, namely affordable technology built just for their needs with great prices and service," said David Marmonti, vice president of marketing for Dell's Consumer Group. "We're thrilled to hear from customers that he's so popular, and in response to their requests for more information, we're launching this fan site."

Personally, I like the kid, and have even looked into buying a Dell computer, but not because of him.

I like the fast PC's, the black boxes and the warranty, and the fact that Consumer Reports Magazine says Dell actually backs it up. Dell has the highest approval rating in customer service of any computer hardware retailer.

That's probably why Dell is the frontrunner of the entire computer hardware industry, extending its lead in both the U.S. and worldwide markets with more than 14 percent of worldwide shipments, and a full 25 percent of domestic shipments--that's double its nearest rival Compaq, according to Gartner Dataquest.

Dell's market cap of $71.3 billion is second largest in its industry, behind titan International Business Machines (IBM) at $186.2 billion. Hewlett-Packard Corp. chimes it at the industry's third largest at a $40.7 billion cap.

Revenue for the Dell's past four quarters totaled $31.8 billion. Dell ranks No. 48 on the Fortune 500, No. 122 on the Fortune Global 500 and No. 7 on the
Fortune Global "most admired" lists of companies.

Although suffering slumping sales post Sept. 11, Dell still leads the pack out of the so-called "PC depression," even gaining market share from rival Compaq and Hewlett Packard Computers.

While overall PC sales fell 12 percent worldwide in the third quarter of 2001 from a year ago, Dell's sales increased. Last year, CNET.com reported "the PC market is shrinking, while Dell Computer continues to gain market share."

Thus, the rise of Dell in the personal computer industry is picking up pace. Just in laptop sales alone, some analysts think today that one in four sold are Dell. This may be an underestimation of Dell's influence, simply because of the increasing market noise coming from a plethora of small competitors with cheaper deals.

Computer prices have decreased steadily with the rest of the market, and Dell has followed the pricing dive, but has refused to dip below $799.00 for a new system depending on the specifications, although refurbished Dell systems can cost less.

Compaq (NYSE: CPQ) trails Dell in PC market share at 10 percent. Gateway (NYSE: GTW) follows with 7 percent market share. IBM(NYSE:IBM) and HP (NYSE: HWP) are both at about 6 percent market share. NEC holds about 3 percent while all other PC makers hold 60 percent of the market, according to Gartner Dataquest's 2001 estimates.

Apple's recent I-Mac upgrade received a lot of media attention in it's 2002 debut. However, Apple's market share is much a smaller, albeit very dedicated niche.  Apple only retains about five percent of the market share in personal computers in the U.S., but has grabbed a 10 to 20 percent market share overseas.

It would seem that Dell is a portfolio must-have, especially considering that
this year's consensus growth estimates target a modest 13.6 percent. Next year's forecast is for growth of 16 percent.

But at $25.60 a share, Dell stock price isn't that far from it's 52-week high of $31. A dip in Dell's share price could occur most likely in some sort of continued Nasdaq back-peddle. LSR's Mauck has his finger on the pulse
of the Composite, so stay tuned to his commentary. I would watch for a trough in the index, and then try to snatch up some DELL dude!.

Biometrics Hype Draws Attention to Security Sector Stocks

By Matt Groesbeck
Long and Short Reports Staff Writer
December 11, 2001