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New offerings hit Wall Street in 'tidal wave' Boom focuses on high-tech companies

NEW YORK — NEW YORK -- Oncor, Univax Biologics, Micro Prose, Med Immune, and Genetic Therapy -- the names are mysterious, the products often fantastic (or fantasy) and the profits elusive.

But despite the uncertainties, these Maryland-based companies have managed to raise millions of dollars recently as part of a near-record nationwide boom in initial and secondary public offerings that has been particularly favorable for companies involved in high technology, especially biotechnology.

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The intensity of the move borders on the overwhelming. Every day, said Alan Radlo, head of Fidelity Investment's billion-dollar over-the-counter fund, six or seven more prospectuses for such companies land on his desk. "It's more than a groundswell," he said. "It's a tidal wave."

For underwriters, competition to gain the attention of major investors is intense. "These guys could go to six breakfasts, six ,, lunches and six dinners every day because there are so many deals," said W. Gar Richlin, head of investment banking for Alex. Brown & Sons, the Baltimore firm that is a leader in the new-issues market.

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Yet the deals keep coming and keep being made. Why?

The fervid market, for one. Since the outbreak of the Persian Gulf war in January 1991, stock share prices have been soaring, particularly for smaller companies.

Mutual funds specializing in health care, biotech and assorted small stocks registered gains last year of up to 80 percent, and that has inspired a flood of new investors to pour additional millions into these funds, despite valuation levels based on such conventional measures as revenues, net worth, and earnings (if there are any at all -- which often there aren't) that are already extraordinarily high. Even at these lofty prices, getting in at the offering can be extremely difficult for small investors.

The prospect of finding eager buyers willing to pay top dollar for their newly issued shares provides an almost irresistible allure for many of these companies, particularly those that are involved in research and face years of heavy expenses before any hope of product revenues.

"The window for these deals is open, and people are taking advantage of it with everything they've got," said Byron Wien, a principal with Morgan Stanley.

In the past, that window has often closed abruptly, increasing the pressure for many companies to react quickly to the current moment, even though there is little indication yet of ebbing enthusiasm.

Beyond the broad bull market, the sustained interest is stoked by the underlying promise of what some of these companies may achieve. At a time when more basic industries are scrapping for sales and boosting profits only through dramatic reductions in costs, these companies are researching, or beginning to manufacture, cures and technologies for needs that have never been met.

The most enthralling story, at the source of much of the current zeal, is the one produced by Amgen, a 12-year-old pharmaceutical company whose market value (the total trading value of all its outstanding shares) has grown more than 20-fold since its initial offering in 1983, from $3 to $68, adjusted for splits, and now exceeds $10 billion.

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With profits of nearly $100 million last year, or 67 cents a share, on revenues of roughly $680 million, Amgen is a giant in the high-tech forest. Shares of the California company, based in Thousand Oaks, about 60 miles north of Los Angeles, are valued at more than $10.3 billion -- an eye-popping 100-times-plus earnings, on the strength of products that boost white and red blood cell production.

Many companies now coming to market offer similarly specialized products that may enhance productivity and health, while remaining unknown to the general public.

Alex. Brown has raised money in recent weeks for three California-based companies -- Target Therapeutics Inc., Qualcomm Inc, and Zilog Inc. Target makes tiny devices to treat vascular diseases of the brain, Qualcomm is researching new digital telephone technology and Zilog produces large integrated circuits.

Are any of these products any good? Under investment laws, companies must refrain from touting their products immediately following an offering during what's referred to as the quiet period, but their shares prices have hardly roared. Target, for instance debuted at $18 a share; it now trades at $31.

Still, successful offerings are just the first indication of a +V company's prospects. Many of the start-up computer manufacturers that went public to great acclaim in the early 1980s have now disappeared and others are now suffering through difficult times.

Fidelity's Mr. Radlo predicted that many of the companies going public today will suffer a similar fate.

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"If we look back in four to five years, people will be saying, 'Why the hell did I invest in some of these?' " he said.

A common feature on the cover of almost every offering now coming to market is the phrase "high degree of risk." For proof, look no further than the income statements enclosed in the prospectuses.

Of the Maryland companies recently issuing stock in the over-the-counter market, only General Physics, a service company that provides training and support services to the nuclear power industry and Department of Energy, has had consistent earnings. The others -- Oncor Univax, Micro Prose, Medimmune, Genetic Therapy and Nova Pharmaceutical Corp. -- are either unprofitable now or have been in the recent past.

The newest initial public offering was Univax, which began trading Tuesday. The 3-year-old Rockville-based company has not generated any revenues from product sales and does not expect to for several years. Losses have been recurring. Business plan?

"The company is focused on the development of proprietary vaccines and immunotherapeutic products for the prevention and treatment of serious infectious diseases and conditions," its offering prospectus stated. Products? "The company is principally developing hyperimmune intravenous immunoglobulins."

The blend of losses and complexity is common. Nova, founded in 1982, has never made an operating profit, and it, too, frankly states in a recent secondary offering that it probably won't for several years. "In light of the nature of certain of the company's projects," its prospectus notes, "the unproved technology involved, and the other factors . . . there can be no assurance that the company will be able to complete successfully the development or marketing of any new products."

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Bad news? Maybe. But the risks, and the long time frame, are not uncommon. Based on data compiled by the Pharmaceutical Manufacturers Association, drugs approved last year took about years to move from the lab to the medicine cabinet.

Recently, many of the start-ups from earlier in the decade, such as Chiron Corp., Cytogen Corp. and DNA Plant Technology, received some positive reports concerning novel cures or applications that have been in research for a long time. Hope runs high that some of these products can, or will, cure vexing diseases as well as enhance life in other ways.

The range of potential breakthroughs stretches is truly vast. The news concerning DNA Plant Technology, for instance, is about a genetically engineered tomato that is less susceptible to fungus. Chiron and Cytogen's potential breakthroughs are tied to various cancers.

The fear, at least for investors, is that many of the new products that seem so promising today will never make it to market; it often happens. Even if an application proves effective, it may provoke disastrous side-affects. Sophisticated products address complex problems and a reason the rewards can be so high is that the solutions are so vexingly difficult.

Still, enthusiasm runs high. Milton Pappas, managing partner of Euclid Capital, a venture capital firm in New York, contends that the biotech industry today "is at the same stage the computer industry was in the early 1960s."

Other areas are inspiring similar hopes. Mr. Richlin of Alex. Brown said a number of promising companies coming onto the stock market are involved in software and technology that enhances productivity.

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If these companies are indeed successful, the benefits will likely spread beyond investors and direct customers to the broader economy. For instance, despite the general increase in unemployment, Mr. Pappas said companies his firm has invested in must expand their search nationwide for qualified microbiologists, lab technicians, and the like, who have become scarce.

As is inevitably the case with companies just entering the public markets, most are tiny with at most a few hundred employees. They are unlikely to have a pervasive impact on gross domestic product or similar broad-based measures of the economy any time soon. But the aggregate results registered recently by many tiny companies provides an encouraging backdrop to the recession.

At the same time as the country's largest companies were registering a fourth-quarter decline in profits of about 20 percent, the profits of small companies (those with revenues under $750 million) began to recover at midyear, this isn't really the same time said Claudia Mott, a research director at Prudential Securities. At the end of the year, they were up about 20 percent from 1990.


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