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Executive Summary

Propelled by strong first quarter sales following the January launch of Virazole (ribavirin), Viratek's stock jumped 42% in the month of May. The effect of ribavirin on Viratek's revenues has been dramatic. With the product on the market only two months, Viratek reported a nearly 800% increase in first quarter revenues, from $378,000 to $3.4 mil. The company's first quarter ended Feb. 28. Investors are reacting to the sales figures and disregarding FDA's March reprimand of the company for exaggerating Virazole's efficacy. The agency told Viratek that its new product press kit overplayed testing results versus viral infections beyond the approved indication for respiratory synctial virus. Viratek stock, which advanced more than 10 points between January and March, retreated just slightly in April before its big May surge. Since the beginning of the year, the company's market valuation has increased almost 90%. Biotech stocks were led by Centocor (up 5-1/4 to 38-1/2) and Amgen (up 5-1/8 to 25-3/3), which reported strong first and fourth quarter results, respectively. Completing a new public offering in May, Centocor reported that for the three months ended March 31 net earnings increased over 350% to $1.1 mil., while sales were up 63% to $7.3 mil. Amgen, which has begun clinical trials with recombinant erythropoeitin, said that its revenues doubled in the fourth quarter, from $3.4 mil. to $6.9 mil. For the year, Amgen's revenues were up 130% to $23.4 mil. As a group, however, biotech issues were mixed, with six companies advancing and six declining. After doubling in market valuation during 1985 and then doubling again the first four months of 1986, Genentech (off 1-1/2 to 78) lost ground in May. The performance of the most visible biotech company during the month's 22 trading sessions suggests a possible new market equilibrium for Genentech and biotech stocks in general. Soluble aspirin continues to be a palatable investment tonic. The product's manufacturer, Pharma-Control (up 2 to 15-1/4) continued its northward push after almost doubling the previous month. Nova (up 1-7/8 to 19-1/4) has also caught the eye of investors. At the end of April, the receptor-technology firm named former Merck Chairman John Huck to be its chairman. With three of the four Index Component averages reaching yearly highs, the Monthly Index Composite edged up fractionally and established a new 1986 high. However, the Composite's .4% move in May lagged behind the S&P 400 average, which jumped 5.3% to close the month at 276.50. The Dow Jones average, mirroring the S&P 400, advanced 5.3% during May to close at 1876.71. Diversifieds were led by the market research firm IMS (up 5-7/8 to 25-1/2). The gain comes after a 27% increase in first quarter net earnings. Another specialty firm, capsule manufacturer R. P. Scherer (up 2-5/8 to 15-3/8), also made a strong advance in May. Alco Health Services (off 2-3/4 to 22) pulled the Wholesaler Component off fractionally. All five of the other wholesaler issues advanced, however, with Durr-Fillauer (up 2-3/4 to 16-5/8) and Moore Medical (up 1-3/8 to 21-3/8) leading the way. Chart omitted.

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