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Executive Summary

The ongoing erythropoietin court battle over patent rights proved a boon to both Amgen and Genetics Institute during February: Amgen added a whopping 10-3/4 during the month to close 23% ahead at 57-1/2, while Genetics Institute gained 7-3/4 to end February up 27.2% at 36-1/4. Some investors are apparently heeding Shearson Lehman's Teena Lerner, who has been strongly advocating buying both stocks as a hedge in the patent battle. In a recent report, Lerner suggested: "Whatever the terms" of a likely settlement, "they are unlikely to cause significant damage to either company. We believe that the share prices of both...will continue to move up." On March 8, a Boston federal court judge suggested that the two companies enter into a royalty-free cross-licensing agreement with the provision that Amgen relinquish its orphan exclusivity. Another hearing is scheduled for March 14. * Nearly all of the biotech stocks listed on the "F-D-C" OTC Monthly Index benefited from the announcement early in the month of Roche's offer to acquire Genentech [which is listed on a separate "F-D-C" Index for NYSE stocks]. The pharmaceutical component of the "F-D-C" OTC Monthly Index kept pace with the Dow Industrials -- up 2.9% and 3.3%, respectively. Overall, the Index climbed 2.8% in February, nearly compensating for its 3.2% January decline. Genzyme milked some good production news in February to add 2-3/4 to 16-1/8, a (20.6% gain). In addition to the sympathetic rise with Genentech, the stock bubbled up on the news of a deal with the microinjection technology firm DNX to develop livestock that produce pharmaceuticals in their milk. The technology could potentially be used to produce the orphan drug for Gaucher's Disease, Ceredase. In other biotechs of interest, Immunex was up 7% to 19; the biotech firm announced it had filed the PLA for its Leukine brand of GM-CSF on Feb. 21. Centocor jumped 18.8% to 30 and monoclonal antibody-based septic shock treatment competitor Xoma also gained for the month, (up 6.4% to 20-3/4). Medco Research continued to move (up 27.3% to 17-1/2) on the strength of two adenosine cardiac agents, Adenocard and Adenoscan. Approved in October, the anti-arrhythmic Adenocard was upgraded by FDA in late January from a "1B" to a "1A" therapeutic rating. Medco announced the NDA filing for the adjunctive cardiac imaging agent Adenoscan in mid-February. Enzon the star of the January O-T-C Index, also maintained investor favoritism as anticipation builds for the approval of its first U.S. product, the orphan drug Adagen (PEG-ADA), and the expected filing of a PLA for PEG-L-asparaginase. The stock was up 20.6% to 9-1/2. Liposome Technology, a newcomer to the F-D-C Index, gained 13.3% to 2-1/8. SEC documents detail New York City investor David Blech's control of 25.9% of the drug delivery company. The disclosure followed a big private placement with Blech in January covering 25% of Liposome Technology stock.

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