AIDS-Related Stocks Have Rocketed in Japan : Securities: But analysts say the chances of the companies finding a cure may be slim.
The stocks of Japanese companies that have entered the race for an AIDS drug have proven to be among the market’s strongest this year. But analysts believe the race is a gold rush that is unlikely to pan out.
AIDS-related stocks have outperformed the market in a year that has been one of the worst in decades for many issues. Eight of the 20 stocks that have risen more than 20% this year are up on AIDS-related news. In the same period, the overall market has fallen 24%.
That fact that most of these companies are putting a minimum of resources into research on an AIDS drug has failed to discourage investors from bidding up the stocks. In fact, it seems to encourage it.
“It’s like prospecting for gold,” said Joel Scheimann, an analyst at Kleinwort Benson Securities. “A lot of these companies are blissfully aiming for a home run, but the odds in their favor are extremely thin.”
Among the biggest gainers are blood plasma derivatives maker Green Cross Corp., up 56%; Mochida Pharmaceutical Co., up 52%; synthetic rubber maker Nippon Zeon Co., up 36%; dairy food processor Meiji Milk Products Co., which is getting into biotechnology, up 22%, and Ono Pharmaceutical Co., up 20%.
Most of the big gainers have been actively traded through the year. Meiji Milk’s daily volume has averaged 4.3 million shares a day, compared to 210,000 for the stocks of other companies listed on the Tokyo Stock Exchange’s first section.
The difference lies in the appeal of AIDS-related stocks. With Japan’s major brokerages projecting that corporate earnings will fall more than 20% in the year through March, 1993, investors have shunned much of the stock market. AIDS research invokes images of a small company striking it rich overnight with a cure. That sales pitch, however specious, has been effective.
“We’ve had a market where it’s difficult to promote companies on earnings. That doesn’t leave you a whole lot of things to make investors find them attractive,” Scheimann said. “If these drugs are at an early stage of development, you can’t disprove the news easily.”
Among the AIDS stars, only Green Cross, which invested $40 million in AIDS research last year, has demonstrated a strong commitment to develop an AIDS drug, said Mitsuo Ohmi, an analyst at Barclays de Zoete Wedd Securities.
Green Cross’ price-earnings ratio is already an incredible 236, compared to an average of 41 for the typical stock on the Tokyo exchange’s first section. Even more ominous, Green Cross said on Friday that recent lawsuits could cost it up to 6.7 billion yen, a figure that dwarfs its projected net profit of 1.2 billion yen.
The plaintiffs for the lawsuits were hemophiliacs who maintained that blood they received from Green Cross was tainted with the HIV virus. Despite the news, speculation about Green Cross’ AIDS drug has pushed its shares up.
Okamoto Industries Ltd., a rubber manufacturer with 10% of its sales in condoms, has surged 38% this year on expectations that condom sales will benefit from a rising AIDS awareness in Japan.
