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R.P. SCHERER SHOWS STRENGTH IN VOLATILE APRIL MARKET; COMPOSITE IS FLAT

Executive Summary

A five-point runup by R. P. Scherer during April contributed to a doubling of the capsule maker's market value in 1987. From a 1986 closing valuation of $117 mil., Scherer has advanced to an April valuation of $236 mil. Scherer led all advancing issues on the "F-D-C" Monthly Index of O-T-C stocks in April, closing at $25 a share. Scherer appears headed back into the black for fiscal 1987, which ended March 31, after two years of red ink. Scherer President Peter Fink recently remarked that one analyst's earnings estimate of 95› a share "looks pretty accurate." The exec added that sales for the year rose "a little better" than 20% over the 1986 mark of $186 mil. The firm's nearly $8 mil. loss in fiscal 1986 reflected Johnson & Johnson's decision to discontinue marketing Tylenol in hard capsules. Scherer was a primary supplier of capsules for Tylenol. After the loss of the J&J business, Scherer subsequently withdrew from the U.S. hardshell capsule market. While still manufacturing hardshell capsules in Europe, Scherer has reorganized the rest of its operation along three strategic lines: creating new products, such as MaxEPA fish oil concentrate, that the company can market under its own trademark; acquiring health care businesses outside the capsule business, for example Southern Optical; and developing new types of drug dosage delivery systems. An example of the last is the company's agreement with American Home Products to develop an oral, fast-dissolving pill that can be taken without water. Overall, in April, Index declines outnumbered advances almost three to two, with 32 of 55 listed issues retreating, 21 gaining ground and two remaining unchanged. Only eight of the advancing issues had gains of at least a point. A modest advance by heavily weighted Glaxo (up 1/4 to 23-5/8) helped lift the Pharmaceutical Component to a fractional gain. The Index Composite was off slightly, falling about 1% in the sharp April fluctuations to close at 462.19. The Composite's performance echoed those of the market's broader-based averages; both the Dow Jones and S&P 400 declined slightly, off .8% to 2286.36 and .3% to 334.40, respectively. Teva (up 2-3/8 to 11) and Genzyme (up 1-1/8 to 14-3/4) stood out in a mixed biotech group. Although some of the more visible issues such as Genentech (off 8 to 49-1/4), Centocor (off 4 to 39) and Genetics Institute (off 4-7/8 to 41-3/8) experienced profit taking after an early year runup, the valuation of the biotech group as a whole remains well above closing 1986 levels. Genetics Institute, for example, began the year trading at at 18-1/4. Genetics Institute's GM-CSF (granulocyte macrophage-colony stimulating factor) development program received a positive review by Robertson Colman & Stephens analysts at the end of April. Heading an April 23 report "GM-CSF: Looking Better Than Ever," analysts Kathy Behrens and David Friend maintained that Sandoz Phase I studies with GM-CSF indicate that the drug appears to be "highly effective in increasing white blood cell levels in AIDS patients." GM-CSF would be a complementary agent in the treatment of AIDS; it would be used in conjunction with an antiviral to enhance the immune system and protect against opportunistic infections. The Robertson Colman analysts projected a possible June 1988 approval based on the AZT 21-month development period to FDA clearance. Among the five Index chain drug stocks, Begley (up 3/4 to 18-3/4) was the only issue to advance as the Chain Component declined 9.3% to a yearly low. Chart omitted.
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