Subject: Epitope Shows Market Is Still Smitten With Biotech Date: Published: 1/17/92 (115 lines) Source: Wall Street Journal. Copyright Dow Jones & Co. Inc. Heard on the Street: Epitope, With Its Shares Still Flying High, Shows Market Is Still Smitten With Biotech ---- By John R. Dorfman Staff Reporter of The Wall Street Journal NEW YORK -- Although drug stocks got pounded yesterday on a broad front, it would take a lot more to rid the market of biotech mania. Just look at little Epitope. The stock market says Epitope is worth more than $200 million. Yet the Beaverton, Ore., company has no earnings and less than $4 million in annual sales. Stocks that sell for 50 times earnings are considered expensive. There's no adjective readily available for stocks that sell at 50 times sales. Epitope shares more than doubled last year, to 22 7/8 from 9 3/4. Although many biotech stocks have been buffeted in recent days, Epitope has been holding up fairly well: It closed yesterday at 25 5/8, down 1 3/8, on the American Stock Exchange. Why does this stock stay aloft? Mainly because Epitope has an AIDS-related product, called OraSure. Optimists hope OraSure will be approved by the Food and Drug Administration this year, perhaps as soon as next month. But take a close look at what this product is. Does OraSure claim to be a cure for AIDS? No. Does OraSure claim to be a test for AIDS? Not exactly. So what is it? OraSure is a saliva collection device. The device was selling for roughly $3.30 before the Food and Drug Administration asked the company to halt shipments in July. Epitope had sold around 800,000 OraSures to Home Reference Laboratories last year, for screening insurance applicants. The rationale was that, even though OraSure hadn't been approved for diagnostic use, it was okay for insurance screening. However, the FDA told the company last July not to sell OraSure at all unless and until it gets approved. To test for acquired immune deficiency syndrome, a medical lab starts with a blood sample. Using saliva -- less invasive for patients -- would have advantages. President Adolph Ferro says Epitope's device is unique, collecting not just saliva but also "mucosal transudate," or molecules from cheek and gum tissues. He adds: "Our pad is soaked in certain compounds" that "enhance the amount of antibodies" in a saliva sample, making for a more accurate AIDS test. If the FDA approves OraSure for AIDS-test sampling, he says, "We would have at least a year head start" on any competitor. Some people doubt the uniqueness claim. Abbott Laboratories, a leader in AIDS testing, has looked at clinical test data for Epitope's device and for rival Omni-Sal, made by Saliva Diagnostic Systems. (Omni-Sal, already on the market but making no AIDS claims, costs $1.10 per device.) For both devices, results were "promising enough to justify continued studies," says an Abbott research official. Abbott saw no significant differences in effectiveness between the two devices. In fact, the official adds, "I've seen no data to indicate that any one device is unique." Epitope's current stock price would seem to require that the optimists be right on four points. First, the FDA has to approve OraSure. This will require "almost 100% correlation with blood {tests}, because blood is the gold standard," says Margaret McGeorge, analyst with Sutro & Co. in San Francisco. She thinks Epitope will get this approval. Next, the volume of AIDS testing would have to surge. And it could happen once a cheap, effective saliva test is available, says Karey Worton of Wasatch Advisors in Salt Lake City, which owns about 110,000 Epitope shares. She envisions tests for prisoners, dental patients and the like. A total of five tests a year per U. S. adult seems possible to her. Third, Epitope would have to stave off such competitors as closely held Saliva Diagnostic Systems and Osborn Laboratories, which is partly owned by a group of insurance companies. And finally, Epitope would have to get a good price for the saliva collection devices. Bulls say Epitope could thrive in other ways. The saliva collection device could be used to test for diseases from hepatitis to herpes, says Ms. Worton. Epitope also is trying to develop an actual AIDS test (not just a collection system), disease-resistant plants (particularly grapes) and an antimalarial drug. Despite her enthusiasm, Ms. Worton says her firm has sold some Epitope shares in recent months. As the price rose, she said, "instead of a 2% bet in an unprofitable highflying biotech, we suddenly had a 5% bet." She added: "Normally I wouldn't put more than 2% of a client's money in this kind of stock. It's not the type of stock you put your IRA in." Charles Biderman, a market newsletter writer in Santa Rosa, Calif., recommends short-selling Epitope -- in effect, betting on a decline in the stock. But he warns that only professionals should try it, because the stock is hard to borrow and highly volatile. Paulson Investment Co. in Portland, Ore., brought Epitope public a few years back. Lorraine Maxfield, an analyst there, uses words such as "bizarre" and "entertaining" to describe the stock's climb. "If you own some, it's great," she says. But "I wouldn't be buying it at these kinds of prices." --- Epitope Inc. (AMEX; Symbol: EPT) Business: AIDS-test development Year ended Sept. 30, 1991: Revenue: $3.8 million Net Loss: $4.9 million; 64 cents a share Fourth quarter, Sept. 30, 1991: Per-share net loss: 23 cents vs. 6 cents Average daily trading volume: 89,263 shares Common shares outstanding: 8.3 million [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.]