Subject: Immune Response Is Bellwether for New-Issues Market
Date: Published: 9/29/89 (143 lines)
Source:  Wall Street Journal.  Copyright Dow Jones & Co. Inc. 

    Enterprise:
    Immune Response Is Bellwether for New-Issues Market
    ---
    Biotechnology Start-Up With Ties to
    Salk Hopes to Raise $45 Million
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    By Udayan Gupta and Jeffrey A. Tannenbaum
    Staff Reporters of The Wall Street Journal

    Immune Response Corp. has 29 employees, no marketable
 product, no sales and no earnings.  But if all goes well for
 the company, it soon will have a stock-market valuation of as
 much as $135 million, thanks to Wall Street.
    The new-issues equity market, it appears, is heating up.
 Many of the players think the success of Immune Response of
 La Jolla, Calif., which is already circulating its
 preliminary prospectus, could mark a turning point for the
 entire market.
    If Immune Response's offering fares well, many other young
 technology companies now effectively barred from going public
 might be able to take the plunge, investment bankers and
 investors say.  The Immune Response offering, still subject to
 clearance by the Securities and Exchange Commission, is
 tentatively scheduled for late October.
    Although it still lacks a marketable product, the company
 has a glamorous concept that could prove to be enormously
 lucrative -- an AIDS vaccine.  Moreover, the celebrated father
 of the polio vaccine, 74-year-old Jonas Salk, is chairman of
 the company's scientific advisory board.  "That's the kind of
 sizzle investors long to buy," says Gordon Ramseier, chief
 executive officer of Immunetech Pharmaceuticals, a San Diego
 drug maker.
    Wall Street underwriters, led by Merrill Lynch & Co., hope
 to raise as much $45 million by selling about one-third of
 Immune Response's shares to the public at $11 to $13 each.
 "Pretty expensive," says Stuart Weisbrod, a biotechnology
 analyst for Prudential-Bache Securities, New York.  One
 influential East Coast mutual-fund manager says many
 institutions are avoiding -- as too risky -- investments in
 biotechnology companies that lack marketable products.
 Although a biotechnology investor himself, he has yet to make
 up his mind whether to buy Immune Response shares.
    James B. Glavin, chief executive officer of Immune
 Response, couldn't be reached for comment.  Charles J. 
 Cashion, vice president and chief financial officer, said of
 the proposed price:  "We haven't just pulled the numbers out
 of the air.  We wouldn't be seeking the price if we didn't
 think it was the right one."  A Merrill Lynch spokesman in New
 York had no immediate comment.
    It's too early to tell how the underwriters will fare;
 some meetings between Immune Response officials and potential
 investors aren't even due to take place until mid-October.
 But succeed or fail, the attempted underwriting may have
 great market significance.  "It's a bellwether for whether the
 markets are going to be receptive to funding emerging
 technology, something they haven't done for the last two
 years," says Peter Drake, a biotechnology analyst with Vector
 Securities International Inc., a Chicago securities firm.
    If the offering succeeds, "it could create a lot of hope
 for many biotechnology companies looking for capital," says
 Frederick J. Dotzler, managing general partner of Medicus
 Venture Partners, Menlo Park, Calif.  Even before the outcome
 is clear, the offering is prompting some small technology
 companies to inquire about their chances of going public,
 adds Sanford Robertson, a principal of Robertson, Stephens &
 Co., a San Francisco investment bank.
    For much of this year, such chances were poor indeed.
 "Every time underwriters have tried to bring out something a
 little racy, it hasn't done well," says Michael Murphy,
 editor of California Technology Stock Letter, San Francisco.
 IDD Information Services, a New York research concern, says
 initial public offerings in the first nine months raised
 about $8.5 billion, a sharp drop from nearly $19 billion in
 the year-earlier period.
    Although some technology companies have been among those
 going public this year, "the high-tech market is a pale
 shadow of what it was in 1983," the speculative peak, says
 Norman G. Fosback, editor of New Issues newsletter, Fort
 Lauderdale, Fla.
    After 1983, and especially following the October 1987
 stock-market crash, many investors turned away from small
 companies as investments or, at minimum, insisted on high
 quality, usually defined as a record of growing profits.
 "Investors have been discriminating in their pick of new
 issues," says Edward Mathias, managing director of T. Rowe
 Price Associates, a Baltimore manager of mutual funds.
    With the stock market robust once again, some
 institutional investors began returning to the new-issues
 market early this year, says Richard L. Franyo, the
 investment banking chief for Alex.  Brown & Sons Inc.,
 Baltimore.  One result was that Network General Corp., a
 Mountain View, Calif., maker of diagnostic tools for
 data-communications systems, easily raised $17 million in its
 initial public offering in February.  The shares have more
 than doubled since then, stirring further interest in the
 new-issues market, Mr. Franyo says.
    Among companies hoping to exploit the situation by going
 public by year-end are Electronic Arts, a San Mateo, Calif.,
 maker of entertainment software for computers; Lattice
 Semiconductor Corp., Beaverton, Ore.; and ImmunoGen Inc., a
 Cambridge, Mass., biotechnology company.  MIPS Computer
 Systems Inc., Sunnyvale, Calif., plans a public offering
 early next year.
    As for Immune Response, which Dr. Salk helped found, the
 company says it is going public because it needs capital to
 offset anticipated operating losses as it develops its first
 products.  Although the company has already received more than
 $17 million from private placements -- the investors include
 Rorer Corp. and Colgate Palmolive Co. -- it expects to spend
 much more than that before seeing a profit.
    The company says its first product under development, an
 AIDS vaccine, is based on a scientific approach first
 suggested by Dr. Salk.  As he had done with polio, Dr. Salk
 proposed using whole but inactivated AIDS viruses to
 inoculate people already infected.  But some other scientists
 say such viruses are unsafe in humans, and Dr. Salk's
 approach is by no means a certain winner.
    Still, because of the Salk name and track record, Immune
 Response shares may have great appeal to individual investors
 -- which Merrill Lynch, the chief underwriter, is
 particularly adept at reaching.  "It's the kind of thing the
 public is interested in," James McCamant, editor of Medical
 Technology Stock Letter, Berkeley, Calif., says of the
 pending offering.  The new-issues market is strong enough that
 the offering "is probably doable," Mr. McCamant says.
    Others caution, however, that no name -- even Jonas Salk's
 -- can guarantee a company's success.  In 1983, Symbion Inc. 
 of Salt Lake City (then called Kolff Medical Inc.)  , went
 public at $12.50 a share.  The company had appeal largely
 because its president, Robert K. Jarvik, had implanted an
 artificial heart in patient Barney Clark, whose name became a
 household word.  But the artificial-heart market failed to
 develop as projected.  Symbion shares now trade at about $2
 and Dr. Jarvik has long since left the company.

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