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CNS R&D FIRMS LEAD MARKET COMEBACK IN JULY AS INVESTORS REGAIN BIOTECH NERVE

Executive Summary

Three central nervous system research firms -- Alkermes, Athena Neurosciences and Cephalon -- posted 20% gains in stock market valuation during the month of July, fueling a rebound in the biotech sector. A fourth neuroscience start-up, Regeneron, posted an 11% gain in July (up 1-1/4 to 12-1/2). The four firms outpaced the 64- company pharmaceutical component of the "F-D-C" Index of NASDAQ- listed firms, which was up 6.9% for the month. Only one CNS research startup, Cambridge Neuroscience, declined for the month, down half a point to 5-1/2. The strength of the newly-public CNS firms could indicate a return to favor for selected recent public offerings after a difficult first half of 1992. A total of 38 pharmaceutical stocks tracked by the "F-D-C" Index posted gains in July; 20 showed declines and six were unchanged. Alkermes (up 1-7/8 to 10-5/8), Athena (up 1-3/4 to 9-1/4) and Cephalon (up 2 to 10-1/4) each bounced back in July after showing declines in every month since January. Both Athena and Cephalon continue to trade well below their 1991 initial public offering prices of $12 and $18 per share, respectively. Alkermes is now back above its $10 IPO price. All three firms boast clinical stage product candidates. Athena was bolstered by the June launch of its mail order pharmacy service; Cephalon moved Myotrophin into clinicals for ALS in early July. A more general biotech rebound for the month was led by two former biotech high-flyers: Immunex and Centocor. Immunex posted a 5-1/4 point (18%) gain for the month, closing at 34. The stock benefitted from the July 23 settlement of breach-of-contract suits with granulocyte-macrophage colony stimulating factor comarketer Hoechst. Investor enthusiasm for the apparently favorable settlement was tempered somewhat by second quarter sales of $6.5 mil. for Immunex' GM-CSF brand Leukine, which continue to lag behind some pre-approval forecasts. Immunex is still trading at roughly half its January peak valuation. Centocor posted a 2-1/4 point gain to close up 17% to 15-1/4 on the company's announcement of a $125 mil. agreement with Lilly for marketing rights to Centocor's anti-sepsis monoclonal antibody Centoxin. The stock also was boosted by the settlement of patent litigation between Centocor and Xoma in which Centocor has agreed to pay royalties on Centoxin U.S. sales. The renewed vitality of biotech stocks was evident in the July performances of the more established firms. Amgen was up 5-5/8 (9%) to 66-1/2, Biogen climbed 4-1/8 (16%) to 29-5/8, Chiron was up 2-5/8 (5%) to 56-7/8, Genzyme jumped 8 (18%) to 52, and Synergen eased up 3/4 (2%) to 50-1/4. Not all biotech issues prospered in July, however. Somatogen, for example, plunged 10 points (32%) to 21-1/2 as investors fretted about Phase I trials of the company's recombinant hemoglobin blood substitute, a planned secondary stock offering and a lawsuit filed by venture capitalists. The company nevertheless completed the public offering, pricing 2 mil. shares at $19 on Aug. 6.
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