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PHARMACIA LEADS OTC INDEX STOCKS IN NOVEMBER; BIOTECH STOCKS LOSE GROUND

Executive Summary

Rebounding Pharmacia (up 3-5/8 to 23-1/4) led all stocks listed on the "F-D-C" Monthly Index of OTC stocks during an otherwise gloomy November. Pharmacia's nearly 20% move follows a four point drop by the stock during the two previous months. In September and October, the market was apparently reacting to an acquisition spree by the company and unfavorable currency exchange. However, despite the costs associated with the company's aggressive expansion program and little change in the currency situation, Pharmacia recently reported a 13% increase in net income to $66.8 mil. for the first nine months of 1986 on a 5% sales gain to $368.1 mil. So far in 1986, Pharmacia has concluded agreements to acquire three medical device companies -- the Swedish firm, LKB Produkter, and two U.S. companies, Intermedics Intraocular and Deltec -- and signed a letter of intent to buy the Swedish pharmaceutical company, AB Leo. In addition, Pharmacia has entered a series of agreements with Electro-Nucleonics covering marketing and development of products in the allergy test area. Overall, declining stocks on the 44-issue Index outnumbered gains by more than three-to-two in November as the index Composite fell .1%. The S&P 400 and the NASDAQ Composite were flat. Hardest hit on the Diversified Component were the biotech group and VLI (off 1 to 3-5/8), which early in the month announced that it was in merger talks with an undisclosed Fortune 100 company. VLI jumped over 2 points to 5-1/2 on Nov. 3 when the company announced that it was talking to a potential buyer, but fell back when the unnamed suitor ended the discussion on Nov. 11. Also shopping around for a potential buyer is Jeffrey Martin (off 5/8 to 4-1/4), which has retained investment banker Morgan Stanley to look into "strategic alternatives." The biotech stocks slipped back after rebounding in October. Centocor (down 3-3/4 to 30-3/4) lost ground after announcing an agreement to buy out FMC's share of the two companies' Immunorex joint venture. The company announced on Oct. 31 that it was incurring a $43 mil. write off to account for the transaction that gives FMC 1.35 mil. shares of Centocor in return for its 50% stake in the joint venture. One year after the first wave of publicity for interleukin-2 research, recent news from the National Cancer Institute's IL-2-LAK study has called attention to the drug's toxicity and the difficulties involved in finding effective treatments for cancer patients. Cetus, the stock most closely identified with IL-2 research, has fallen 14 points since June, and in November fell below its December 1985 cosing price. Cetus has also been hurt by the financial community's initial reaction to the company's plans for establishing a European subsidiary. Other declining biotech stocks in November were Biogen (down 1-7/8 to 8-3/4), National Patent (off 1-3/4 to 11), Immunex (down 1-1/2 to 12), EnzoBiochem (down 1-3/8 to 10), Integrated Genetics (off 1-1/4 to 8-1/4), and Cetus (down 2-1/8 to 22-1/2). Only Amgen (up 1-1/4 to 23-7/8) gained more than a point. The two highflying stocks on the OTC index during 1986 -- Viratek (up 1/2 to 78-1/2) and Genentech (unchanged at 90-3/4) -- each finished a volatile month near where they started. However, during the month Viratek traded in the 88-61 range, while Genentech hit a low of 81-3/4 early in November before rebounding near month's end. Chart omitted.
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