Fear of AIDS Puts Biotech Firms’ Stocks in the Spotlight
Soliciting brokerage business can be tough. But Bryan Straw, a broker in the Atlanta office of Merrill Lynch, says he commands rapt attention from investors these days just by saying one word: AIDS.
“Because AIDS is so prominent, a lot of people are interested in getting in on the ground floor financially,” Straw said. “Fear of the disease . . . (has) created a lot of investor interest.”
Straw has been promoting the stock of Burroughs Wellcome Co., a British concern that makes an AIDS treatment recently recommended by a Food and Drug Administration panel for marketing approval.
Publicity about acquired immune deficiency syndrome has ignited investor interest in the disease, setting off a search for stocks in biotechnology firms, blood banks, condom makers and other concerns that may stand to reap financial rewards from treating or preventing the spread of AIDS.
During the past few months, some of these stocks have skyrocketed and plummeted with each new FDA announcement, analyst’s report and news story.
“I don’t think there is any question but that AIDS is hot on Wall Street,” said Jim McCamant, editor of the Medical Technology Stock Letter in San Francisco. “We are going though a re-evaluation of the dangers of AIDS that is showing that it is spreading into the heterosexual community. I don’t think the investment interest is misplaced. In fact, I think you’ll see more of it.”
Potential AIDS treatments are not the first to stir interest on Wall Street.
Cancer-fighting agents such as interferon and monoclonal antibodies attracted lots of investor interest in the early 1980s. But the products failed to quickly make their way from the laboratory to hospitals and become lucrative treatments. As a result, they soon fell out of favor with many investors.
Now the Wall Street spotlight shines on the stock of companies such as North American Biologicals and IMREG Inc. Miami-based North American is involved in blood storage and provides a blood testing service. New Orleans-based IMREG Inc. has an anti-AIDS, immune system-enhancing product called IMREG-1 in the final phase of human testing.
The price of both stocks doubled in early February. However, they dropped off toward the end of the month.
Even Newport Beach-based Newport Pharmaceuticals, whose much ballyhooed AIDS drug Isoprinosine is undergoing new clinical trials after being rejected as a treatment for the disease by the FDA, found its stock last week was trading near its 52-week high.
Investors and analysts insist that the excitement over such firms is warranted: AIDS--a so-far incurable disease--is predicted to strike more than 270,000 people by 1990, according to the U.S. Public Health Service. And many of the companies whose stock has soared recently make drugs that could cost hundreds of dollars an application or, like condoms, provide a service or products that require repeat or constant use to maintain effectiveness.
What’s more, analysts predict, the roller coaster ride for these stocks is far from over.
Consider some recent stock performances.
Daxor Corp., a New York-based company that provides a way for individuals to store their own blood for several years, bypassing the need for transfusions from others, could interest only about 200 people to pay the $150 a month Daxor charges to store blood.
But early last month the company announced an employee benefit contract with Warner Communications Inc. for the preservation service and Daxor’s stock jumped 387%--from $5.75 a share on Feb. 5, to $28 a share on Feb. 18. By Friday, however, the price fell to $17.875, down 50 cents a share.
Though they registered a less stellar rise, the stock of some pharmaceutical firms developing drugs to treat AIDS have also risen.
Burroughs Wellcome, a British company whose stock can only be purchased through U.S. broker’s foreign desks, rose 38% to $6.90 from Feb. 16 to Feb. 18, before settling at $7.30 on Friday. The company, with facilities in North Carolina, makes azidothymidine (AZT), an AIDS treatment.
Shares of Pharmatec Inc., which is exploring ways of improving the effectiveness of an AIDS treatment and has a research contract with Burroughs, rose 36% to $8 between Feb. 5 and Feb. 20. Unlike other stocks it didn’t dramatically retreat.
At least in one instance, the dramatic movement of the stock of a drug company attempting to develop an anti-AIDS product has attracted the interest of the Securities and Exchange Commission.
Probe of Report
Six months ago, the commission opened an investigation of possible manipulation and insider trading in the stock of Costa Mesa-based ICN Pharmaceuticals Inc., which makes an anti-viral drug called Virazole.
Since ICN began making claims about Virazole’s use against AIDS 18 months ago, its stock price has soared 134%. Shares of ICN’s Viratek unit, which holds the rights to Virazole, have jumped more than 250% in that same period.
ICN officials have said that the SEC probe focuses on a flattering report about ICN issued last fall by an analyst for Paine Webber. Lawrence Panitz, ICN’s chief operating officer who last month confirmed the SEC probe in news accounts, did not return several calls to ICN offices. ICN spokesman Richard Keating refused to comment.
The SEC declined comment, as did a Paine Webber spokeswoman, citing an ICN shareholder-related class-action suit in federal court that also questions the investment report.
Analysts’ reports about AIDS, once unheard of, have been issued by a number of investment houses besides Paine Webber, including E. F. Hutton and Robertson, Colman & Stephens in San Francisco.
The reports have helped focus investor interest on companies such as condom makers, whose products were social unmentionables not long ago.
Shares of Mentor Corp., a small pharmaceutical company in Minnesota that has been making condoms only since last fall, jumped 71% to $46.375 between Feb. 5 and Feb. 18.
And although condom sales account for just 10% of its $348.8 million in annual sales, Carter-Wallace Corp.--the nation’s biggest condom maker with about 50% of the U.S. market--saw its stock jump 89% in one month to $151 by Feb. 18.
The other big condom maker, Schmid Laboratories Inc., a division of London International, which makes Sheik brand condoms, is traded only in Great Britain.
Likewise, Melbourne, Australia-based Pacific Dunlop Ltd., which holds about 15% of the U.S. condom market, is traded only on the Australian stock exchange.
Even VLI Corp., the Irvine-based manufacturer of the Today contraceptive, saw its stock jump briefly last month, when it announced that it is considering entering the condom market.
But investors so far seem to be ignoring some logical financial beneficiaries of the rise in AIDS cases, analysts say.
Testing Firms Ignored
For example, AIDS testing, already nearly a $100-million-a-year business, has not attracted nearly as much investor interest as have anti-AIDS drugs and condoms.
Analysts attribute the relative lack of attention to AIDS diagnostic tests to the fact that the market is dominated by a few successful large firms such as Abbott Laboratories, Litton and Du Pont, whose billion-dollar balance sheets aren’t much affected by the relatively paltry AIDS diagnostic testing market.
“Investors want to participate in the AIDS prevention market,” said Lynne Pauls, a pharmaceutical company analyst with E. F. Hutton, who wrote a report last September focusing on companies that are involved in AIDS research and prevention. “We like to focus investors on companies with good underlying fundamentals. And there aren’t many places for them to go.”
