Subject: Biotech Firms Sell Stock Again In Hot Climate Date: Published: 11/11/91 (193 lines) Source: Wall Street Journal. Copyright Dow Jones & Co. Inc. OTC Focus: Biotech Firms Sell Stock Again In Hot Climate ---- By Anne Newman Staff Reporter of The Wall Street Journal NEW YORK -- Eager to cash in on investors' craving for biotechnology stocks, many young biotech companies that went public just this spring or summer are tapping the equity market with a new round of share sales -- often at much higher prices. While the heady stock sales are healthy for the nation's young, capital-hungry biotechnology industry, seasoned biotech investors caution that they can be hazardous for long-term buyers. This fall's crop of second-time sellers of stock includes a crowd that had a tough sale in the spring when they went public for the first time. Then they fell prey to a chill that descended on biotech offerings after the stock of Regeneron Pharmaceuticals plummeted to half its offering price. Companies such as MedImmune, COR Therapeutics, Alkermes, Glycomed and Isis Pharmaceuticals, which settled then for raising less money than they wanted, are now finding it easier to sell stock again -- and at much higher prices -- in the current biotech feeding frenzy. COR Therapeutics, for example, sold stock in an initial public offering in late June at $7.50 a share. Late last month, it sold more stock, this time at a whopping $18.25 a share. Yet COR, which is developing a product aimed at preventing heart disease, isn't expected to break even -- much less be profitable -- before 1996. Companies with AIDS-related products in development are wildly popular. Shares of MedImmune, a small Gaithersburg, Md., company that went public in May at $9.25 a share, had soared to $50.50 by Thursday -- when the company said it plans to sell 2.5 million more shares. In a telling sign, two million of those shares are being sold by insiders -- venture capital companies that originally backed the developer of AIDS-related products. "Sure it's fast," concedes Michael Gordon of the Fidelity Select Biotechnology Fund of Boston, referring to some biotech companies' speedy return to the equity market. "But the market's strong. They might as well make hay while the sun shines." Big investors don't fault the fast-growing, cash-starved young industry from selling stock at such high prices, even if these institutions are wary of buying the shares. The maturing biotech industry has several things going for it that it didn't during previous buying frenzies that later collapsed. Biotech companies "are lucky they're hitting the public financing market just when their big brothers {such as Amgen} are making piles of money," says Cheryl Alexander of Putnam's Health Sciences Trust of Boston. Amgen's anemia-fighting drug Epogen, for example, proved that genetically engineered drugs can be blockbusters. Companies such as Amgen, Immunex and Centoxin are getting far higher prices for their rare drugs than expected. And regulators are moving more quickly to approve drugs that treat fatal diseases such as AIDS. The latest flurry of stock sales "is a very appropriate strategy," says Edward Owens of the Vanguard Specialized Health Care Portolio. "It's very good for our country to put this money in the pockets of good scientists, free them from government grants, and let them research their hearts out." Competitively, "it will give us a better chance than Japan and Europe in developing the future," he adds. But Mr. Owens, for one, isn't nibbling at the second round of stock sales by this year's newly public biotech companies. "I think some of the managements that saw me twice are wondering what in the world is this guy doing? " he says. "But I'm building a base for later." A biotech investor since the early 1980s, Mr. Owens has found that if he just waits, he can buy the shares of many embryonic companies long after the initial enthusiasm has died and the stocks are much cheaper. He suspects that sophisticated investors are quickly selling the fast-rising stocks to more naive investors who aren't aware of the perilous road ahead for many drug developers. "I think there's a lot of uninformed buying right now," he says. Putnam's Ms. Alexander, for example, "flipped" COR Therapeutics when the company sold stock for the second time at $18.25 each. She bought new COR shares, then sold them quickly for a quick profit as the stock rose as high as $22 a share a few days later, before easing. "We're doing a lot of those now, flipping them," Ms. Alexander says. "It's free money." She questions the wisdom of investors who expect the stocks to continue rising, as many of the companies aren't expected to be profitable for five or six years -- and some may never be. "There will be a bear market between now and 1997," she adds wryly. Ms. Alexander has been spreading her risk by buying more shares of such huge drug companies as Abbott Laboratories and Johnson & Johnson, whose stocks have lagged shares of the smaller biotech companies. Fidelity's Mr. Gordon is limited to biotech investments by his fund's mandate, but still finds ways to safeguard his gains. Mr. Gordon bought during some of second round of stock sales by young biotech companies, but he also owns a huge basket of other biotech stocks -- including many seasoned companies such as Amgen. As for the little, untested companies, he says: "I look at my investment in early-stage companies like these as a fluid process. If they go down, I'll average down my costs if I continue to like the long-term story." Selectivity is important to John Kaweske of Denver's Financial Funds, who sticks with companies that have products that are already being tested on humans. Still, he plans to pare his biotech holdings to 15% of his health-care fund from 17%. And he is also beefing up his holdings in big drug stocks to 30%. Of course, there are also skeptics who urge investors to sell the young new crop of companies short, that is, borrow shares and sell them with the hope of profiting by replacing them later at a lower price. "Not a single one of those {companies} has earned a penny, and they may never earn any money," says Charles Allmon, publisher of the Growth Stock Outlook newsletter of Chevy Chase, Md. "I'd suggest you short the whole list." And Jim McCamant, publisher of the Medical Technology Stock Letter, recalls that even hugely successful Amgen fell to less than one-quarter of its initial offering price just 17 months after its 1983 debut in the public market. --- Friday's Market Activity Over-the-counter stocks charged to another record in a narrow rally led by technology and biotechnology shares. The Nasdaq Composite Index rose 2.80 to 548.08, a 0.51% climb, as advancing issues outpaced decliners 1,092 to 923; 175 stocks climbed to new highs as only 25 fell to new lows. OTC volume eased to 211.4 million shares, well above volume of the New York Stock Exchange, from 216.1 million shares Thursday. For the week, small stocks raced ahead of larger ones. The Nasdaq Composite Index gained 1.32%, compared with a 0.35% loss in the Dow Jones Industrial Average. Among the day's most active stocks, Apple Computer jumped 3 1/2 to 53 1/4, Microsoft rose 1/2 to 95 1/4 and Amgen gained 2 to 57 1/2. Apple officials told analysts Thursday that demand has been strong for the Cupertino, Calif., computer maker's new line of notebook-sized personal computers, which were introduced last month. Success in the notebook segment of the market has so far eluded Apple. Analysts subsequently told Dow Jones Professional Investor Report that they may raise their earnings estimates for Apple. Namic U. S. A, which sold 3.2 million shares in an initial public offering priced at $18 each, closed at 18 1/2. The issue was offered well above the expected range of $13 to $15. Namic is a Glen Falls, N. Y., manufacturer of products used in the diagnosis and treatment of cardiovascular disease. Clearly Canadian added 1 to 17 on volume of 3.3 million shares. The company said that it expects to report net income of $15 million to $16 million, or 90 cents to $1 a fully diluted share, for the fiscal year ending in June 1992, compared with net of $5.9 million, or 51 cents a share, in fiscal 1991. The Vancouver, British Columbia, concern also offered assurances that its sparkling water products are pure. Separately, Clearly Canadian said that it plans to buy back at least 750,000 shares. Synergen continued to rally, jumping 2 1/8 to 65 3/8 after a 5 1/2-point jump Thursday. Investors flocked to the biotechnology company's shares after it disclosed Thursday clinical data on the effectiveness of its Antril drug, which is to be used in treating sepsis, a blood infection. Centocor sank 1/2 to 44 3/4. The company reported a third-quarter loss of $34.9 million, or 97 cents a share, compared with net of $13,000 a year earlier. It said the loss reflects heavy spending on its development efforts. The stock fell 1 3/4 Thursday. Centocor has also developed a sepsis drug. Johnson Worldwide dropped 3 7/8 to 20 1/8. The company reported a loss of 14 cents a share for its fourth quarter ended Sept. 27, including restructuring charges, compared with a year-earlier profit of four cents a share. Shares of First Federal Capital of La Crosse, Wis., gained 3/4 to 19 3/4. The company said that it reinstated payment of dividends on its common stock with the declaration of a 14-cent payout to holders of record Nov. 29. The company hasn't paid a dividend since August 1990. Newly public Lannet Data Communications jumped 1 1/4 to 17. The company reported that third-quarter net income more than doubled to 27 cents a share from 11 cents a share. [This article is made available here by Dow Jones Co. for the personal and non-commercial use of callers to this bbs, in the hope that it will be of some help to those who are suffering from the disease and others who are seeking to help them.]