The stakes have been raised for




Thursday, one of the nation's most important newspapers essentially accused the company of dissembling. Not about a trivial matter, but about whether its diabetes drug,


, is killing people. In a massive analytical piece published on its front page, the

Los Angeles Times

argues that Rezulin has been implicated in far more patient deaths due to liver toxicity than previously understood.

Causing death tends not to be a good side effect for a drug. Nevertheless, Wall Street didn't care, at least on Thursday. The stock actually closed up 1 1/8, or 1.6%, to 72 5/8. But worries about Rezulin's safety and its looming competition have hobbled the stock, which hit its all-time high of 85 15/16 on July 20 and is down 14% since.

The controversy has marginally increased the small risk that the drug could be pulled from the market, says one health-care analyst for a major Wall Street money management firm. (The firm hasn't owned Warner since the beginning of the year.) But more significantly, the controversy ups the pressure on the

Food and Drug Administration

to appear vigilant about patient safety.

On March 26, the FDA will convene a previously scheduled advisory panel to re-review the safety and effectiveness of the drug, which had about $756 million in sales last year and has been touted as having billion-dollar potential.

"The panel will need an extremely compelling argument in favor of the drug in face of the emerging safety problem, which is putting patients at significant risk," says Orville Kolterman, a diabetes specialist at the

University of California, San Diego

and the head of clinical affairs at diabetes biotech company




The FDA has tightened recommendations for liver enzyme monitoring three times since the drug was approved in early 1997. Since the most recent change in late July, the company says deaths and serious toxic reactions are down, but the

L.A. Times

article questions that assertion. The article implies that the company misled the public when, according to the article, a Warner spokesman in December said that "the reported events relating to ... deaths or liver transplants since the label was changed July 28 is zero." The article goes on to report the fact that Warner actually reported 31 deaths in Rezulin patients to the FDA between July 28 and when the spokesman made the statement.

The company sharply rebuked the paper's article. "It's flattering a bit to call that information 'data,'" says Robert Zerbe, Warner's senior vice president of clinical research and development. Steve Mock, the spokesman, stands by his statement, saying the company didn't know then whether any of the 31 deaths were associated with Rezulin. He says his statement was taken out of context and that the first death associated with Rezulin reported after the third label change came to light in January.


L.A. Times

stands by its story. Glenn Bunting, the investigative projects editor in the Washington bureau, says, "Warner-Lambert has had ample opportunity to justify their numbers and explain why they chose to exclude most of the Rezulin deaths that have been reported. The company has repeatedly declined to divulge its methodology or criteria used to reach its conclusions." As for the Mock quote, Bunting says, "The statement attributed to Mr. Mock is accurate and presented in full context."

Virtually no one on Wall Street thinks Rezulin will be pulled from the market, but many expect that the panel might slap an even more restrictive label on the drug. "Most people assume it stays on the market, and the bulls say it will grow modestly while the bears see it falling," says John Borzilleri, a pharmaceutical analyst for

State Street Research

, which owns no Warner stock.

Some doctors continue to view Rezulin as a good drug. Robin Goland, the director of the

Naomi Berrie Diabetes Center

in New York, says that, for now, "It's been my feeling that the benefits outweigh the risks. I haven't had to stop anyone on

Rezulin. Most things we use have side effects."

Despite its solid sales, Rezulin isn't a hugely profitable product for Warner because the company has to pay developer


, a Japanese drug company, 15% to 20% of the sales.

But Warner's cholesterol-lowering drug


is such a runaway success that it's covering a lot of sins. State Street's Borzilleri foresees Lipitor sales of $3.5 billion this year, up from $2.2 billion a year earlier.

On Jan. 19,

Merrill Lynch

, in maintaining its buy rating on the stock, cut its 1999 earnings estimate by 2 cents to $1.92 a share and cut its 1999 Rezulin sales number to $750 million from $900 million. In 2000, Merrill sees Rezulin selling $600 million, down from the previous $913 million and sees the company earning $2.26 a share. Merrill has acted as a Warner banker.

The increased problems come right as Rezulin could face formidible competition. Rezulin, which is used by adult diabetics to lower their blood sugar and reduce their use of insulin, is in the "glitazone" class of new diabetes drugs. Two new glitazones are up for review by the FDA,



SmithKline Beecham

(SBH) - Get Report



, to be sold in the U.S. by

Eli Lilly

(LLY) - Get Report


Takeda Chemical

, a Japanese drug concern. Both will be reviewed by the FDA advisory panel in late April. There are hints that both have fewer liver toxicity problems, but data in the public domain is limited, especially on Actos. Both pills are expected to sharply curb Rezulin's sales and to be, in and of themselves, billion-dollar drugs.

Rezulin can cause rare liver problems that can kill. According to data compiled by the

L.A. Times

, there have been 155 reported deaths among Rezulin patients. About 60% of those patients showed signs of liver damage. Reports of liver-related fatalities in which Rezulin was cited as a contributing factor rose to 65 cases last year, from 14 in 1997. Already in 1999, there have been 12 cases, the newspaper said. According to the article, as of Feb. 3, the FDA counted 33 deaths as "associated" with the drug, out of 100 patients who suffered liver-related fatalities since the launch.

But Warner says Rezulin has been ruled out as a cause in almost all of the 155 reported deaths. It says there have been 30 to 35 deaths or liver transplants associated with Rezulin, or -- in other words -- 30 to 35 deaths or transplants in which Rezulin couldn't be ruled out as a cause. Since the most recent tightening of the liver monitoring in July, the company says it believes there have been "less than five cases" of death or liver transplants.

The company is prepared to defend itself next week. But the question is: Has irreparable damage been done to Rezulin? Kolterman at the University of San Diego says: "It's a terrible state of affairs to tell a patient: 'You have diabetes, and the best option we have to treat you is with this drug that may kill you.'"

As originally published, this story contained an error. Please see

Corrections and Clarifications.