[Willow Bay, Cnn Anchor:] Tonight on MONEYLINE, shares of Eli Lilly capsize: a blockbuster ruling putting its blockbuster drug Prozac in grave jeopardy. We'll talk with the CEO of Eli Lilly.
[Stuart Varney, Cnn Anchor:] An abrupt end to the longest blue- chip winning streak in years: Is the Dow's late summer rally over?
[Bay:] Firestone, launching the second-biggest tire recall in U.S. history: the impact on drivers, automakers and Firestone itself
[Varney:] And what do these unsuspecting salmon have to do with cutting-edge technology? More than you might think.
[Announcer:] This is the MONEYLINE NEWS HOUR, live from New York and Los Angeles.
[Bay:] Good evening, everyone. I'm Willow Bay in Los Angeles.
[Varney:] Stuart Varney in New York. Our top story tonight: a staggering market plunge for the company behind Prozac. The stock in Eli Lilly was halted at 12:59 Eastern on the big board. Minutes later, investors found out why: A U.S. Appeals Court overturned a decision that protected Lilly's patent on Prozac until 2003. Translation: Generic competitors could hit the market as soon as next year. Lilly immediately slashed earnings estimates for late 2001 and early 2002, and when the stock opened up again at 3:39 p.m., it was more than $30 lower and fell even further by the close. Peter Viles has the story.
[Peter Viles, Cnn Correspondent:] Eli Lilly new this day was coming but not this soon. Its patent on Prozac, the hugely popular antidepressant drug, gave it exclusive marketing rights through 2003. But a federal appeals court struck down one of those patents today, leaving Lilly and Prozac vulnerable to generic competition next year: a huge victory for Barr Laboratories, a generic drug-maker that challenged Lilly's multiple Prozac patents in court.
[Barbara Ryan, Deutsche Bank Alex Brown:] The cost of Prozac to consumers will probably drop 80 to 90 percent. So, that's good news to consumers as these are, you know, widely used drugs and fairly expensive on a cost-per-day basis.
[Viles:] The court ruled Lilly had improperly extended its exclusive rights to market Prozac by obtaining a double patent that would extend beyond next year. Lilly shares tanked on the news, losing more than $30 a share, roughly $38 billion in market value. Also hurt by the ruling, Sepracor, which has a licensing agreement with Lilly to sell a variation of Prozac, and Forest Laboratories, which makes a Prozac competitor. The big winner was Barr, the legal challenger. In fiscal 1999, Lilly sold $2.6 billion worth of Prozac, 26 percent of its total sales. Through two quarters this year, sales totaled 1.2 billion, running 4 percent behind last year's levels. Drug analyst Len Yaffe predicts Lilly's Prozac sales will fall by about a billion dollars a year.
[Len Yaffe, Bank Of America Securities:] Lilly had a setback today with generic Prozac coming to market 34 months earlier than was expected, but we think that they'll continue to grow after the one- year anniversary of generic Prozac being on the market at a mid-teens rate because they brought so many good drugs to market in the last four years.
[Viles:] Lilly immediately said it would appeal this ruling, but the Supreme Court rarely hears patent cases, especially when the case is seen as a straightforward application of patent law Stuart.
[Varney:] So, Peter, this is not a long-running legal drama where the outcome is uncertain. Lilly has taken a hit and that's it.
[Viles:] They're going to keep fighting it in court, but Wall Street voted today: They believe this battle is over and that Lilly has lost it.
[Varney:] All right, Peter Viles, thank you very much. Let's go to Willow now with more on this story.
[Bay:] Stuart, joining us now to talk about today's ruling and the impact on Lilly's bottom line, CEO Sidney Taurel. He comes to us from Lilly headquarters in Indianapolis. Thank you for joining us.
[Sidney Taurel, Ceo, Eli Lilly:] You're welcome.
[Bay:] You've indicated that this decision will cut into earnings in calendar year 2001 and 2002. But by how much will it impact your earnings?
[Taurel:] Well, we expect to continue to produce double-digit growth in the first half of 2001, and then after August 2001, when we expect to see generic fluoxetine on the market, to have a decrease in both sales and earnings for the next four quarters, but then resume our growth in the second half of 2002. So calendar years 2001 and 2002 should be still years where we grow, albeit in single digits.
[Bay:] In Peter Viles' report, we just heard an analyst suggest that Prozac sales will fall about a billion dollars as a result of these generic competitors. Is that a fairly accurate assessment?
[Taurel:] It's a bit too early to give precise figures. We do have a once-a-week formulation of Prozac, called
[Bay:] Those will help in the future, but what is your strategy for competing against a generic drug? Can you or do you just watch sales erode?
[Taurel:] Oh, basically the strategy, which we have put in place for a long time, is to come up with new products, new products both in the field of depression, which are going to help us continue to maintain our franchise in this very important market, but also drugs in many other areas. We currently have eight product which are in phase III clinical trials, two more to reach that stage by the end of the year. So, that means up to 10 products that will be launched between 2001 and 2004. And this is really what will help us weather this storm.
[Bay:] As you well know, your stock was hit hard on the news. Other pharmaceutical companies Pfizer and Merck, for example were also down. Is this a decision today that could affect the entire pharmaceutical industry?
[Taurel:] That's not for me to say. I would doubt it. There is no reason for it to do so. It's a very specific decision, and one which, you know, is not over. We hope to appeal it, and there is no reason in my mind that this should affect the rest of the industry.
[Bay:] As we noted, your stock was down 30 percent or so today. Did investors overreact?
[Taurel:] You know, at the end of the day, the market is always right, at least in the medium, long term. Perhaps for the short term, there is a certain overreaction, in my view. If you compare the previous estimates for our earnings in 2001 and 2002 and the sort of guidance that we gave today, single-digit growth for both years, the difference between the two does not justify a reduction of $38 billion in our market capitalization.
[Bay:] Sydney Taurel of Eli Lilly, thanks for joining us tonight on
[Moneyline. Taurel:] You're welcome.
[Bay:] Stuart.
[Varney:] Well, Willow, after the bell today, a more uplifting story emerged from the tech sector. The chip equipment maker Applied Materials, which shot higher in regular trading, beat expectations with its quarterly report. Income more than doubled with AMAT that's the stock symbol earning 70 cents a share, 2 cents better than expected. And sales jumped more than 80 percent. The shares are up less than a dollar in active late-day trading. The stock was beaten up last week on fears that chip demand was, in fact, slowing. And we will have more on this story later on MONEYLINE. Applied Materials was a winner today, yes, in what was generally a losing day on Wall Street, especially for blue chip stocks. After a phenomenal seven-session advance, the Dow lost its way, ending down 71. Even the Nasdaq went astray, losing a strong rally sparked by a bullish report from Cisco. Susan Lisovicz reports.
[Susan Lisovicz, Cnn Correspondent:] By the time the opening bell rang, investors already knew they were headed for tech stocks, thanks to a profit report on Tuesday. Tech bellwether Cisco's robust quarterly earnings ignited buying in the Nasdaq's biggest big cap, as well as other stocks involved with powering the Internet. Cisco, Juniper Networks and JDS Uniphase jumped in the early going, and closed with solid gains. Chip stocks, including Intel and Analog Devices, also advanced. But investor enthusiasm waned, and the Nasdaq, which had been up 2 percent at its high for the session, closed up just five points on the day at 3,853.
[Edward Von Der Linde, Lord Abbett & Company:] Over the last couple of weeks, though, you're seeing a definite move toward probably a more defensive posture. Utilities have worked. Certain sectors of the financials have worked. And they keep on trying to rally the old leaders, the ones for the last two years, but it's not convincing. For example, Cisco a year or two ago with the report they had last night would have been up a lot more than it is today.
[Lisovicz:] And the Dow couldn't get a rally going at all, ending a seven-session win streak to close down 71 at 10,905. The Dow's two pharmaceutical stocks, Merck and Johnson & Johnson, slumped in sympathy with Eli Lilly after an adverse patent ruling on its antidepressant, Prozac. And retail stocks also sold off, including specialty chain Talbot's, luxury goods store Tiffany, and Dow component Wal-Mart. The nation's No. 1 retailer met earnings expectations but was slammed on word that customer traffic slowed toward the end of the second quarter.
[Charles White, Avatar Associates:] The market right now lacks some of the broad leadership that you'd like to see to feel better about extending a bull market move here.
[Lisovicz:] And that translates into sector rotation, which is why the Nasdaq and Dow continue to trade in a narrow range. Investor indecision was reinforced by the release of the Federal Reserve's Beige Book, which showed more signs of a slowing economy. That helped alleviate interest rate fears, but makes stocks with high valuations vulnerable. Susan Lisovicz, CNN Financial News, New York.
[Bay:] Not all the Nasdaq stocks went astray today. Two dot.coms exploded after announcing a mammoth merger. Phone.com is buying Software.com for $6.8 billion. Both companies are involved in various kinds of Internet messaging software. The price tag amounts to a 17 percent premium over Software.com's close on Tuesday. Phone.com rocketed more than 13, and Software.com soared nearly 34 34 today. So what's behind that warm reception? Several analysts said it was the fact that Donald Listwin, currently a top Cisco exec, will lead the combined company, and we'll talk with him later on MONEYLINE Stuart.
[Varney:] Thanks, Willow. An update now on the story we brought you late last night: A massive tire recall by BridgestoneFirestone. The company today formally announced that it was recalling 6 12 million tires. BridgestoneFirestone will replace the ATX, ATXII and Wilderness brands as the government investigates whether those tires played a role in a series of fatal crashes. Firestone had to recall 14 million tires in the late 1970s. That nearly bankrupted Firestone, which was eventually taken over by the Bridgestone's Corporation, based in Japan. Bridgestone's stock tumbled 185 yen that's more than 8 percent in Tokyo's Wednesday trading session. The stock is down 15 percent this week. The competitor, Goodyear, which is the world's biggest tire- maker, it gained nearly a point and a half today.
[Bay:] Coming up next on MONEYLINE, back above $30 a barrel: What lit the fire under oil prices this time and what does it mean for the economy?
[Varney:] And later, salmon: It's not for dinner anymore. We'll tell you about a strange high-tech breakthrough.
[Bay:] And on the prowl in California wine country, one bug with a serious drinking problem. Those stories coming up.