Medco's stock price soars to 733 times earnings; company's value fueled by future potential of heart drug.

Medco Research Inc., a tiny Los Angeles-based pharmaceutical shop, is the mouse that roared on Wall Street.

Last week Medco, whose eight employees research heart drugs, was rising in a bear market, nearing an all-time record $22 a share.

With 9.1 million shares outstanding, Medco last week was worth $200.2 million on Wall Street -- yet the oft-controversial company had a meager net of 3 cents a share, or $244,594, on net revenues of $474,384 in its latest reported quarter ended Sept. 30.

Medco's stock price is trading for 733 times its latest annualized earnings. By way of comparison, the Standard & Poor's 500, a broad gauge of the stock market, trades for about 19 times earnings.

Medco's stock price, of course, is based on the potential of heart drugs it has in the pipeline, not on its current sales.

Its promising drug now is Adenoscan, which some say will help hospital doctors take pictures of the heart, helping diagnosis. One analyst has said Medco could earn $3 a share from Adenoscan.

Company officers won't make projections, but sound optimistic notes.

"We are hopeful and confident about Adenoscan," said Sanford Hillsberg, company director and lawyer with the West-side-based law firm Troy Gould. "However, we do not make sales projections."

John Boettinger, an analyst with Chicago-based brokerage house Kemper Securities, has projected Medco will earn $2.50 to $3.00 a share from Adenoscan.

Wendy Feldman, a stockbroker with Bateman Eichler, Hill Richards (part of Kemper) in Century City, is also bullish on Medco.

"At this price, I like the stock," she said. "I have been buying this stock since it was at $5 a share."

Not a major-league drug house, Medco instead selects and studies existing pharmaceuticals, about which much is already known. It then ushers heart drugs through the lengthy federal approval process, planning to later license actual manufacture and distribution of drugs to others. Medco makes money on royalties.

During its 13-year history, Medco has pushed just one drug, named Adenosine, through the whole process, and the drug's royalties make up all of Medco's meager operating revenues. Adenosine is used to treat irregular heartbeats.

Often in recent years, Medco stock has leaped on the perceived potential of drugs it is researching or, on two occasions, on company press releases hinting a corporate buyout of Medco may be under way. Medco stock, as a result, has had a wide-open trading range between $1 and $20 a share in the last several years.

Short traders -- investors who bet the price of a stock will go down -- have long contended Medco is a hype, based on drugs or corporate combinations that never seem to materialize.

"It is a classic hype situation, everything they have is a potential 'world-beater' drug," contended Fritz Garrette, a Long Island-based short trader. He noted company officers often sell large blocks of stock.

Garrette also contends Medco trading is heavily influenced by a relatively small number of bullish stockbrokers and their customers. Therefore, the stock is somewhat artificially propped up now, he said.

But Medco stock's latest upward gyration was provided by the Wall Street Journal, which Nov. 13 reported its drug Adenoscan was a winner when it comes to dilating the heart.

Doctors dilate hearts to take pictures of it, using an injection of radioactive thallium, a drug which shows up on X-rays. When a heart is dilated, it is easier to spot clogged arteries and other problems.

However, many patients are too ill to run on a treadmill, the usual way of dilating a heart.

Medco's Adenoscan is based on Adenosine, a drug that occurs naturally in the body. The drug opens the heart up, much like exercise. There is a competing drug, Dipyridamole, already on the market, which also causes dilation.

Medco has been angling for federal Food and Drug Administration approval to sell Adenoscan since February 1990, but so far to no avail. Too, Medco is awaiting a ruling from the U.S. Patent Office that would grant it a patent for the drug.

Last week, Medco officials said they believe a patent is pending, and they hope the FDA will make up its mind favorably. "I would classify the patent as a certainty," said Archie Prestayko, Medco president and chief executive. "The FDA is not quite as definite, but we are hopeful."

Said lawyer and company director Hillsberg, "We have had Adenoscan before the FDA since February 1990. The approval process for heart drugs usually takes an average of 18 to 24 months."

Meanwhile, Medco may soon be buoyed by broader coverage in the stock analyst community, said Medco bull Feldman of Kemper. She explained that at the American Heart Association conference in mid-November in Anaheim, some doctors praised Adenoscan as a diagnostic aid. Attending the meeting were analysts from Goldman Sachs, Merrill Lynch and PaineWebber, all major brokerage houses.

Currently, only Kemper analyst Boettinger follows Medco.

"If even one analyst (from a major brokerage) likes the stock, it'll go up," said Feldman.

Separately, Medco announced last week it acquired rights to two other heart drugs, one that helps treat heart failure, and another that will aid in diagnostic imaging of the heart, again, in combination with X-rays. It is too soon to tell what the FDA will make of the drugs.