Subject: Biotech Stocks Are Bouncing Back 
Date: Published: 7/20/92 (171 lines)
Source: Wall Street Journal. Copyright Dow Jones & Co. Inc.

    OTC Focus:
    Biotech Stocks Are Bouncing Back
    ----
    By Craig Torres
    Staff Reporter of The Wall Street Journal

    NEW YORK -- It's the stock market's version of a medical miracle:
 Biotechnology stocks are back from the dead.
    The group is surging this month, although most of the biotech
 shares haven't yet come close to their peaks reached in January.  The
 American Stock Exchange's Biotechnology Index has risen 11% in July
 to 161.58.  That is still 37% below the Jan. 14 high of 256.60.  But
 it is 23% higher than this year's low of 131.52, set April 28.
    While investors may be tempted to jump on for the ride, a lot of
 biotechnology pros are extremely cautious.  Even though the selling
 frenzy has abated, they say, it could be a good long while before
 the government opens the floodgate for another big-selling biotech
 product to come to market.
    "The only real rally takes place when you have an exciting
 product, like Amgen's Neupogen, which goes from zero sales to $100
 million," says Sarah Gordon Wild, biotech analyst at Amerindo
 Investment Advisors.  "The tone of these stocks is getting better,
 but it's still one to two years from the next significant Food and
 Drug Administration approval."
    Individual stocks in the biotech index show impressive gains:
 Gensia Pharmaceuticals is up 24% since the end of the second
 quarter; Immunex is up 9.6% for the period; Centocor, thanks to an
 equity investment by Eli Lilly, is up 23%.
    The big question for investors is whether they have seen the end
 of the grinding January-to-April slump that took the Amex benchmark
 down a stunning 49%.  The answer from many biotech investing pros is
 that the current move is a kind of bargain-hunters' rally that
 should be approached cautiously.  Most of the pros see no reason the
 biotech stocks couldn't slip lower again.
    What has lured some investors back to the group is that some
 biotech shares were beaten down to levels that about equaled the
 companies' cash holdings -- a yardstick that prevails instead of
 "book value" in the unusual world of biotech investing.
    "Cephalon got down to $7.50; cash is about $6.50 a share, and
 they have one of the strongest product pipelines out there," says
 Ann Lamont, general partner at Oak Investment Partners, a Westport,
 Conn., venture capital company that invested in Cephalon when the
 company was private.
    Cephalon is up 24% this month, to 10 1/4 Friday.  Still, investors
 who bought shares for $18 a piece in the April 1991 initial public
 offering are stuck with a 43% loss.  Cephalon of West Chester, Pa.,
 is working on drugs for neurological disorders.
    While there are few blockbuster drugs on the cusp of approval,
 there are strong technical factors supporting the market, investors
 such as Ms. Wild say.
    Short-sellers, who sell borrowed stock in a bet that shares will
 decline, have started repurchasing many of their bets to bail out,
 giving a lift in the beaten-down market where most selling has been
 exhausted.
    Big speculators are starting to buy.  "I've been getting calls
 from hedge funds who are asking fundamental questions about these
 companies," says Ms. Lamont.
    The stocks "have turned around and they have momentum," says
 Roger McNamee, general partner at Integral Capital Partners in Palo
 Alto, Calif.  "We've started nibbling on some stocks," he says, such
 as Univax Biologics of Rockville, Md.
    It sounds strange, but Mr. McNamee points out that a lot of
 investors view biotechnology as a "safer" way to be exposed to
 health-care stocks right now, because the companies aren't likely to
 report disappointing earnings.  That is because most young
 biotechnology companies have no earnings.  Instead, they spend their
 cash on research with the hope of developing a drug that will
 generate big sales down the road.
    Fearing tighter regulation and slowing earnings growth in the
 health-care industry, Robert Czepiel, manager of the Robertson,
 Stephens Emerging Growth Fund, has sold most of his medical stocks
 but kept two -- Immune Response and Synergen.  He thinks these
 companies have strong possibilities of winning FDA approval for
 important drugs in the next few years.
    Like a lot of pros, Mr. Czepiel is cautious about the rally in
 biotechnology.  "In terms of new developments or products, it's hard
 to find any," he says.
    Shares of companies involved in AIDS-related research, such as
 Immune Response, may be attracting some buyers on the eve of the
 International Conference on AIDS, which starts Friday in Amsterdam.
    Several companies are expected to make presentations about
 current research.  Outside of that event, there's scarce information
 to hang a rally on.  "What concerns us about the sustainability of
 this move is the lack of news," says Cam Philpott, portfolio analyst
 at Montgomery Asset Management.
    Even so, Mr. Philpott has been picking up a few shares of cheap
 biotechnology stocks, which he won't identify.
    While the news may be slow now, analysts are starting to generate
 more research, which could also support the biotech group.
    "The downturn in the market has done wonders for the research
 business" because the pace of offerings has slowed, says Michael
 Walsh, biotechnology analyst at Robertson, Stephens & Co. Analysts
 "are going to come to stronger conclusions" about which companies
 they like.
    Of course, analysts will tend to focus on the languishing stocks
 of companies brought public by their investment banking colleagues
 over the past year.  But they aren't likely to find a lot of interest
 among the pros, many of whom are stuck with losses from new biotech
 offerings.
    "I haven't been a big fan of the newest tier -- the 1991 initial
 public offerings," says Cheryl Alexander, manager of the Putnam
 Health Sciences Trust.  She advises investors to buy seasoned
 companies.  In recent weeks, she has bought shares of Genzyme of
 Cambridge, Mass., which is expected to earn $2.10 a share in 1993.
 The stock closed 53 1/2 Friday, down 1 1/2, though the company
 announced that it would begin human clinical trials for its burn
 treatment drug.  She has also been buying Chiron, based in
 Emeryville, Calif., which is expected to earn 65 cents a share in
 1993; the stock closed at 58 1/2 Friday, down 1; Chiron is involved
 in a variety of drug projects targeted at diseases, such as multiple
 sclerosis and cancer.
    ---
    Friday's Market Activity
    Stumbling technology stocks triggered a selling trend in the
 over-the-counter market, which was further fueled by quickly denied
 rumors about President Bush's health.
    The Nasdaq Composite Index fell 5.67 points, or 0.98%, to 570.52.
 Losing stocks outnumbered gainers 1,311 to 945.  For the week, the
 index rose 8.39 points, or 1.5%.
    Friday brought a swoon in the Nasdaq 100.  The index of the
 largest Nasdaq non-financial companies, many of them technology
 concerns, plunged 11.48 points, or 1.8%, to 611.08.  OTC volume was
 moderate with 123 million shares traded on the National Market
 System, off from 141 million shares Thursday.
    The OTC market was rocked when International Business Machines
 posted disappointing earnings.  The stock fell 5 1/4 on the New York
 Stock Exchange, to 95.
    Apple Computer tumbled 3 3/4 to 45.  Apple posted a slightly
 higher-than-expected fiscal third-quarter profit of $1.07 a share,
 compared with a year-earlier loss of 44 cents caused by a
 restructuring charge.  But several analysts cut their estimates for
 future quarters, citing concern about profit margins.
    Corporate Software fell 2 1/8 to 8 1/2.  The Canton, Mass.,
 software developer posted second-quarter net income of 18 cents a
 share, down from the year-earlier 23 cents a share.
    PictureTel plunged 5 1/8 to 17 7/8.  After reporting
 second-quarter results late Thursday, PictureTel guided lower Wall
 Street's estimates for second-half earnings.  It expects to meet
 analysts' forecasts of $145 million to $150 million in 1992 revenue.
 But it looks for per-share earnings of 70 cents to 75 cents; without
 tax credits, the figure might be 55 cents to 60 cents.  That compares
 with what had been a Street mean estimate for the year of 74 cents.
 PictureTel said it is selling more products "indirectly" through
 third parties in a campaign to expand its dominance in group
 videoconferencing systems.  The move is shrinking its profit margins.
 Late Thursday, the company indicated that it would expand its
 investment in indirect channels in the U. S. and in research and
 development as a percentage of revenue this year.
    Software giant Microsoft fell 2 to 70 1/4.  Novell dropped 1 to
 54, and Sun Microsystems sank 5/8 to 27 1/2.
    Elsewhere, AES shrank 3 to 19 1/2 after it said "little progress"
 had been made in negotiations with senior lenders for funding of the
 AES Cedar Bay Project, a Jacksonville, Fla., coal-fired power plant.
 The Arlington, Va., electric power producer said it is possible that
 the contractor may stop construction as early as July 20 if an
 agreement isn't reached to continue funding the project.
    Dynatech was off 1 3/4 to 17 1/4.  The Burlington, Mass.,
 microprocessor-based equipment concern said it expects fiscal
 first-quarter per-share earnings will be about 25% below the 20
 cents it reported in last year's first quarter.  It also said sales
 will be about $122 million, or 4% above the year-earlier $117
 million.  The company blamed an unsteady economy.  Analysts had
 expected Dynatech to match last year's per-share earnings.

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