Tangle on Wall Street: Columbia Labs Takes on Sturza

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By Jesse Eisinger
Staff Reporter

Looks like

Columbia Labs

(COB)

is going to return

Evan Sturza's

fraternity pin.

Columbia Labs and controversial newsletter writer Sturza's once-amorous relationship has turned terribly sour. After spending months as a lonely bull behind the Miami medical products maker, Sturza is now telling his clients to dump Columbia.

This recommendation has Columbia steamed. The company went so far as to threaten a lawsuit on Thursday. Of course, bald threats and actually filing a lawsuit are two different things. After making the threat, just how close is Columbia to reaching out and touching Sturza in a legal way?

"We haven't sued him yet," says Norman Meier, president and chief executive. "We are looking at what the damages are. We want to protect our shareholders. We are talking to our attorneys."

Our shareholders, ourselves: Meier and his family and Chairman Bill Bologna each own about 2 million Columbia shares out of the 28 million outstanding.

After being a longtime bull on the stock and calling a significant rise in the shares, biotech specialist Sturza cut his rating on Columbia initially in March to a hold. The stock dropped 25% to 10 1/4 in the last week of March. Since then it's rebounded 63% to close Thursday at 18 5/16. Then, last week, Sturza cut his rating to a sell. Sturza did not return a phone call seeking comment.

Last week, Columbia issued a blow-by-blow 1,200-word press release, replete with legalese, rebutting what turns out to be a relatively mild two paragraphs from

Sturza's Medical Investment Letter

of July 31. "Columbia will show in this statement that the Sturza letter is comprised of misleading and factually incorrect assertions¿. Therefore Columbia disputes the Sturza letter, and unmasks it as a subjective attempt to further the Sturza agenda," the statement says.

What's L'Agenda Sturza? "When the true facts are presented herein by Columbia the Sturza Letter and its agenda are seen for what it is -- a panic effort to save the short position investors in Columbia shares," the statement reads.

Doth the company protest too much? "Maybe that's true," concedes Meier, an outspoken Bronx native, but he explains: "It's personal, OK. It's personal. What can I tell you? We got attacked on March 20. We answered that with action. He comes back with his innuendo, his little quotes and we got mad."

Says Jack Lamberton, a pharmaceutical analyst for

NatWest

: "It's unusual for a company to issue a direct response to an analyst's report. That in itself raises a yellow flag."

Meier continues to be bullish on the prospects for Crinone, the company's vaginally delivered hormone. The problem is that the company is partnered with

Wyeth-Ayerst

, the drug division of

American Home Products

(AHP)

, which initially appears to be the perfect partner, but on closer examination isn't.

American Home tenaciously defends its hormone replacement products, led by the most prescribed drug in the U.S., Premarin. Analysts fear that AHP will bury the Columbia product instead of marketing it strongly because Crinone could erode sales of its own products. "I have concerns," says one sell-side analyst who rates the company a hold and spoke on the condition of anonymity. "It appears to me they have a conflicted interest in marketing

Crinone.

"AHP says it's not going to be a big product, but Bologna has been promoting it as having a great opportunity," says the analyst.

Meier concedes that "AHP says it's a niche product." But he adds, "AHP is not going to jump up and down till they start selling the product." The product addresses a $250 million infertility market, which would mean about $60 million to $80 million to Columbia, says Meier. Bullish analysts estimate a range between $37 million and $57 million in 1998, according to Peggy Roell, Columbia's chief financial officer.

In his most recent report, Sturza says, "In a now all-too-familiar pattern, COB's Crinone has yet to be launched in the United States, although the product received FDA approval ¿ three months ago." It goes on, "Given the sharp price spurt -- COB now sports a $554 million valuation -- and our continuing concerns regarding Crinone's commercial viability, we are lowering our recommendation on COB shares from hold to sell."

In its rebuttal, Columbia says that it did not receive approval for the Crinone indications three months ago, but when it announced the approval, Aug. 1. The company also says that American Home "has embarked on a nationwide launch for Crinone."

The "pattern" Sturza refers to is the reason many analysts and investors shy away from Columbia, whose management is widely viewed as promotional. In the early '90s, investors got burned when the company's Replens, for vaginal dryness, was put on the market to great fanfare but bombed. In the first half of 1996, Columbia got about a half a million dollars from Replens, which is sold by

Warner-Lambert

(WLA)

.