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Executive Summary

Amgen (up 5 to 22-5/8) and Chiron (up 5-1/2 to 24) rebounded nearly 30% from declines in October, suggesting that the general drubbing that biotech stocks suffered in September may have been only a temporary setback. For the most part, biotech and other R&D-based issues included on the "F-D-C" Monthly Index of OTC stocks regained to their pre-September levels by the end of October. Amgen currently has five therapeutics in clinical trials, including one potentially large product, erythropoietin. EF Hutton analyst Peter Buell has predicted that the product may have broad use indications for treating anemias and that lengthy clinical and regulatory review may not be required. In addition, Amgen's agreement with development partner Johnson & Johnson has the biotech firm sharing equally in profits rather than just collecting royalties from product sales for anemia. Amgen holds exclusive rights for the drug in the U.S. for use by dialysis patients. Chiron is on the verge of receiving royalty payments for its work on Merck's new recombinant hepatitis B vaccine, Recombivax. Chiron also has an ambitious development program that includes superoxide dismutase as well as an orphan drug, epidermal growth factor. Overall, Index advances outnumbered declines almost two to one in October, with 27 stocks gaining, 15 retreating and two remaining unchanged. After a nearly 11% drop in September, the Index Composite rebounded, advancing 5.4% to surpass the 300 mark. By contrast, and indicative of the blue-chip nature of the market's rally, both the Dow Jones and S&P 400 averages outperformed the Composite, rising 6.2% to 1877.8 and 5.8% to 270.9, respectively. Moving with the market, Genentech (up 19-1/2 to 90-3/4) gathered momentum at the end of the month, reasserting itself as the premier biotech stock. Last week the company announced plans to buy out two of its R&D partnerships in stock transaction valued at $500 mil. The deal will give Genentech exclusive U.S. rights to its TPA product, Activase, for which an NDA is now pending and potential revenue estimates are ballooning, and to its currently marketed human growth hormone product, Protropin, which should generate $50 mil. in sales this year. Coupled with an announced two-for-one stock split, the news sparked a rash of buying activity on the "Street." Viratek (up 22 to 78) led all Index issues in terms of point and percentage (39%) gains. The stock is now trading at an all-time high and remains this year's Wall Street wonder, having increased almost 600% since January. Viratek's parent company ICN is still trading well below its 52-week high. Of the approximately 20 R&D firms on the Index, all but three headed north in October. Also included among the gaining issues were Centocor (up 6-1/4 to 34-1/2), Integrated Genetics (up 2-1/8 to 9-1/2), Elan (up 1-7/8 to 15-1/4) and Teva (up 5/8 to 5-3/4). One of September's few gaining R&D stocks, receptor technology firm Nova (off 3-1/8 to 14-5/8) retreated in October as did Biogen (off 3/8 to 10-5/8). Nelson R&D (off 1/4 to 3-3/8) also lost ground against the advancing tide. Glaxo (off 1/4 to 13-1/4) has shown relatively little price movement even though the company's American Depository Receipts have been traded heavily in the U.S. all year. Owens Minor (up 2-3/8 to 16-1/4) led a strong wholesaler group in October. With the exception of Durr-Fillauer, which remained unchanged at 11-7/8, all the wholesaler issues listed on the Index advanced. Chart omitted.

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