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

February 09, 1992|By Thomas Easton | Thomas Easton,New York Bureau

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.

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.

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.

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.

"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.

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