PCS AND MEDCO ADVANCE WHILE INDEX DRUG ISSUES DECLINE IN JUNE OTC MARKET
PCS (up 3-1/2 to 29-1/2) and Medco Containment Services (up 2 to 37) were among seven of 54 listed issues on the "F-D-C" Monthly Index of O-T-C stocks to advance at least one point in a mixed June market. The two third-party prescription drug claim processing firms have caught the investment community's favor with fast growth records and positioning into the managed-care health market. Both PCS and Medco operate plastic card systems, through which clients can help manage the drug portion of their health care costs. The card systems are one of two business units for each company and fit differently into each firm's overall operating scheme. For PCS, the card system makes up about 75% of total revenues and is the primary business focus. Pharmaceutical Data Services, an Rx audit firm, makes up the remainder. On the other hand, Medco's card system, Paid Prescriptions, accounts for less than 10% of company revenues, with over 90% derived from its mail order Rx drug business, National Pharmacies. During 1987, both PCS and Medco have continued to grow in a growing market: PCS revenues increased 38% in fiscal 1987, while net earnings jumped 55%; Medco's sales more than doubled in the most recent quarter and net earnings were up almost 60%. At a recent analyst presentation in New York, Medco management predicted sales and earnings growth in excess of 50% over the next several years. In terms of growth in market valuation, however, PCS has been the clear winner thus far in 1987. PCS stock, which began the year trading at 13-3/4 has more than doubled in six months. With a 1986 closing price of 32-1/2, Medco stock reached a 1987 high of 46-1/2 at the end of March and retreated to 35 in May before its June rebound. Despite advances by the Diversified, Chain and Wholesaler Components, an 8% decline by the Pharmaceutical group pushed the Index Composite lower for the month. The Composite's 3.4% decline in June was in sharp contrast to the S&P 400 average, which advanced nearly 6%. Integrated Genetics (up 2-5/8 to 11-3/8) and Cytogen (up 2-1/8 to 10-3/8) were among the few advancing biotech issues, which as a group continue to lag in the wake of an approval delay for Genentech's (off 8-1/4) TPA product, Activase. Integrated Genetics, one of the few biotech firms to turn a profit, took another step toward returning to its February high of 13-1/8. Interest in Cytogen appears to center around a perceived patent technology advantage over other monoclonal antibody manufacturers. The company was recently granted a patent for a second generation process that links drugs or isotopes to a single carbohydrate on the antibody, away from the antigen-binding region. According to the company, first generation methods, which link compounds to amino acids along the surface of the antibody, can impair the ability of antibody to bind to the antigen. Contrasting with Cytogen's advance were declines by two other monoclonal makers, Centocor (off 4-3/4 to 38-3/4) and Xoma (off 3 to 20). Chart omitted.
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