It's not the culture. It's all the other things. (Stupid.)
And that's why
probably won't combine, despite reports Wednesday suggesting talks are on, with only a couple of issues to iron out about DuPont's dress code and Monsanto CEO Robert Shapiro's penchant for sweaters.
DuPont isn't interested in a significantly dilutive acquisition, the company has indicated to investors. A merger of equals of the life sciences businesses -- in which Monsanto holders would likely not get much of a premium -- probably would force the companies to spin off too many units, even more than are allowed under pooling accounting, which companies favor in deals. Oh, then there's a little problem with this agency called the
Federal Trade Commission
, which would likely frown upon the combined firm's potentially dominant biotech patent and technology position, according to a health care investment banker close to the situation.
Not that the two companies haven't talked about it, but Monsanto is the pharmaceutical industry's William Ginsburg: It'll talk to anybody (which makes the media think Monsanto is Clinton, who will merge with anything).
Scarlett Lee Foster, a Monsanto spokeswoman, says, "While it's the policy of the company not to comment on speculation, that is exactly what this is, speculation." DuPont declined to comment.
So, why the rumor a day on Monsanto? Because the last refuge of the frustrated investor is the takeover rumor. In other words, fast-selling analgesic
hasn't cured investors' pain.
In the past, monster launches have meant huge stock gains, and investors expected the same for the St. Louis-based life sciences semigiant. Monsanto is in the process of launching a clear blockbuster in Celebrex, but its stock has done diddly. In mid-January, when the drug was launched with much fanfare, Monsanto traded in the mid-40s. Wednesday, after the revived scuttlebutt, it closed at 46 5/8.
Meanwhile, during the last two days, Celebrex logged more prescriptions than pep pill
did when it peaked five weeks into its launch, according to
, a scrip-monitoring service of
. And Celebrex shows no signs of slowing, while Viagra sales should probably go on the dole.
That will probably make Celebrex the fastest launch ever, ahead of both Viagra and the now-No. 3,
, a cholesterol lowering pill jointly marketed by
. Pfizer also pushes the blue impotence tablet.
One look at the stock performances of Pfizer and Warner-Lambert during their blockbuster launches explains Monsanto holders' anguish. In April 1998, during the launch of Viagra, Pfizer's already well-capitalized stock jumped 24%. It added about $30 billion in market cap that month, about the entire size of Monsanto. While Viagra got more mainstream media coverage and became a cultural phenom, Celebrex has also received its fair share of media attention.
Lipitor is probably a better comparison. Warner-Lambert had to split the profits with Pfizer. In March 1997, the first month of Lipitor's launch, Warner-Lambert shares rose just 4%, as the spectacular nature of the drug's market share grab seeped in slowly, despite prominent media coverage. But four months after the launch, the stock had rocketed 60%.
Why Monsanto hasn't reacted is puzzling to investors. "I would have expected the stock to act better," says a major pharmaceutical portfolio manager who is long the stock. "People have decided they are just going to play Pfizer."
There are several things dogging the stock, says the money manager. One frequent knock is that Monsanto has to split the Celebrex profits with Pfizer, which is co-marketing the drug.
A New York money manager who hasn't bought Monsanto says: "I think people think the profit split with Pfizer is better" than it actually is. The manager thinks most people assume it's around 70%; his own estimate is a 53/47 split.
But sales of the drug could reach $1.5 billion to $2 billion this year and Celebrex could grab a quarter of the pain market. Analysts think that kind of share will be unassailable when
comes on the market later this year with a competing drug.
While most drugs aren't profitable in their first year of marketing, Celebrex will probably make money sooner. Even after giving up plenty of profits -- the terms of the split aren't entirely clear yet, but Monstanto probably gets slightly more than half -- it will easily be over a billion-dollar product to Monsanto, with sweet margins. Monsanto had $8.6 billion in sales in 1998. Last year, the profit-and-loss statement and balance sheet were messy, but -- including a generous payment from Pfizer for Celebrex -- the company earned $580 million, or 93 cents a share, from continuing operations excluding unusual items.
Another major investor concern is that the pipeline at
, the Monsanto drug division, is perceived as bereft. Late last year the class of anticlotting drugs called fibans failed, and recently, two smaller anticancer drugs bit the dust. The portfolio manager says he had "high hopes and low numbers" in his model for the fibans, but nevertheless, when that class failed, investors began to take pause.
"Celebrex will give them a nice earnings boost, but it's such a one-dimensional story," says the New York money manager.
Then there is new pressure on the agribiotechnology business in Europe. Genetically modified food will require labels in Europe. (Here in the U.S., the antibiotechnology movement is pretty toothless.) Monsanto's enormous commitment to agribiotech is a central to philosopher-king Shapiro's so-called vision. But this could turn out to be a bust. "Monsanto made some bets where, to some extent, the odds have changed. Most people would say it's not going to be easy to get
genetically modified product accepted in Europe," says the health care investment banker.
Finally, there's been a collapse of global commodity prices, brought on by oversupply. That has spooked those Monsanto investors primarily focused on agricultural issues.
All things considered, investors can look forward to more of the same: stagnating stock and abounding stories.