On the cutting edge: biotechs

Revolution takes many forms. Chanting demonstrators were marching in protest in Berkeley, Calif., against volleyball courts about to be built by the University of California in People's Park, a haven for the free speech movement in the 1960s and for the homeless today. These protesters, sporting the long hair and tie-dyed garb of the '60s, are still fighting to change the system.

Just a few blocks away, some revolutionary changes in medical technology and investment strategy are being tracked by the considerably more sedate Piedmont Venture Group.


Following as many as 500 small stocks of difficult-to-understand biotechnology companies, its Medical Technology Stock Letter is on the cutting edge of change. The newsletter's aggressive stock portfolio, up an impressive 40 percent in value in 1991, has risen 363 percent since its inception in late 1987. Meanwhile, paid subscriptions doubled this year to 3,000.

It digs through a tangle of complex concepts, hopeful breakthroughs and obtuse terminology. Editor Jim McCamant must assess the potential product, financial know-how of those producing it and likelihood of acceptance by the Food and Drug Administration.


"In the land of the blind, the one-eyed man is king, and in this field I am the one-eyed man," laughed McCamant, editor of both the Medical Technology Stock Letter and the new AgBiotech Stock Letter which emphasizes the non-medical technology. "Wall Street, though it has expanded its coverage, still doesn't have a clue about this inefficient market with so many opportunities."

McCamant was relaxing on the couch in the living room of his home. He had just attended an analyst session on the merger of Chiron Corp. and Cetus Corp.

While a number of small biotech firms do go out of business, the industry has matured and many are making significant profits. A greater number of companies with ability to sell stock and operate as "real companies" is a boon for the industry.

Biggest mistakes made by investors, McCamant believes, are:

* Buying a stock at the height of initial publicity about its technology, since such stocks never stay high. Wait awhile and buy it at half the price.

* Accepting sales estimates offered by the companies. There are often a lot of high hopes included in projections.

* Not fully understanding potential competitors offering products with similar uses. Many companies make it seem as though they're absolutely alone in a field.

"Most of these stocks are high risk, so buy three to five of them," he counseled. "You run the risk of volatility, since many just go up and down, as well as fundamental risks regarding viability of company products."


A basic portfolio would emphasize companies with least risk. He likes Chiron, maker of therapeutic and diagnostic products. Its combination with Cetus is intelligent because Chiron needed manufacturing facilities and Cetus had lost momentum in its research and development of biological products.

Another choice would be Synergen Inc., which has three biological products ready,including one for treating rheumatoid arthritis.

He suggests Collagen Corp., whose stock dropped following negative reports about its injections used to reduce wrinkles. But it has two other strong products, one to help urinary problems and another a replacement for bone in bone grafts.

Xoma Corp., with two key pharmaceutical products awaiting FDA approval, is another good bet.

Riskier choices include Chantal Pharmaceuticals, which licenses a hair-growth drug to Upjohn, and Bio-Tech General, a diversified Israeli biotech company.

Medical Technology Stock Letter, P.O. Box 40460, Berkeley, Calif. 94704, is published 24 times a year and has a $260 annual subscription.