Medco Research stock revives as bulls resuscitate their optimism.

Medco Research stock revives as bulls resuscitate their optimism

Like a kangaroo with a hotfoot, West Los Angeles-based Medco Research stock has bounded up again on Wall Street, hitting 52-week highs after plummeting last fall.

The seven-employee drug research firm's stock traded in the $17-a-share range last week, quadruple the $4.25-a-share nadir it plumbed in December -- and almost back to the peak $20.75-a-share it reached last March.

At last week's price Medco's 8.85 million shares outstanding are worth more than $150 million on American Exchange -- a bullish capitalization for a company that posted a net of $123,520, or about 1.4 cents a share, on revenues of $776,283 in its latest reported quarter, ended Feb. 28. Medco's stock last week traded at more than 300 times current earnings per share.

Among bulls, the potential commercial application of a Medco heart drug under federal Food and Drug Administration review, Adenoscan, is cited for the price run-up.

Company officials last week said they had no specific explanations for the most recent upward gyration, other than the FDA is proceeding with its review. "They (the FDA) are nearing the completion of their review, but we haven't reported anything lately. I think the investment community is just getting a sense of continuity from us," said Archie Prestayko, the Medco president who in November replaced the sometimes-controversial Manfred Mosk, company founder.

Mosk -- who held a degree from an unaccredited college, and years ago was involved with an anti-age drug -- signed company documents and news releases, "Manfred Mosk, Ph.D." Since Mosk started the company in 1978 he has been called "Dr. Mosk" by Medco employees.

But bulls say the past is past -- and that Prestayko's Ph.D. is from an accredited college -- and what the market is anticipating now is FDA approval of Adenoscan, which dilates the heart and thus can help doctors take X-ray pictures of the vital organ.

The drug may allow at-risk patients to skip a treadmill test, calling for 150,000 to 400,000 Adenoscan injections a year, said bulls.

"If Adenoscan is approved, it is going to add $4 to $5 a share (annually) to Medco's bottom line," said Larry Westby, a Southland investor in Medco stock. "And that's just domestic sales." One analyst, Hemant Shah, of the New Jersey-based HKS & Co. stock research outfit, has said Medco sales could zoom to $100 million a year.

In March, Medco rallied on takeover rumors, only to get clawed by bears and short sellers who cited Mosk's questionable credentials and Medco's lack of revenues or profits. Heavy selling by Mosk and other board members -- as much as $1.8 million worth in one month -- helped foster the stock slide.

Indeed, for at least three years Medco has been the rope in a Wall Street tug-of-war between bulls, who say Medco's three heart drugs -- MEDR 640, Adenocard and Adenoscan -- have a tremendous commercial future, and bears, who say they don't.

Twice in recent years, Medco buyout rumors have surfaced, with investment bankers being publicly hired, including Lloyd Greif in the Los Angeles offices of Sutro & Co., and Thomas Weinberger in the Westwood offices of Oppenheimer & Co. But no deal was ever struck.

Medco's niche is to usher drugs through the testing process and to seek FDA approvals for use and U.S Patent Office recognition. Actual manufacturing and distribution of drugs is licensed to others, while Medco collects royalties.

In addition to petentially vast profits on Adenoscan, said bulls last week, Medco has reported two consecutive profitable quarters. Too, the company recently got itself listed on the American Stock Exchange.

And the market is correcting damage done last year by the Feshbach brothers in Northern California, the famous short traders (short traders are investors who profit when a stock goes down in value), who publicly called Medco an "overhyped" stock that was really worth $4 a share.

But even with Medco at $17 a ducat, the price can only go up, insist bulls.

"Now, Medco has had two profitable quarters in a row, and a third one looks to be coming," said Wendy Feldman, broker with Wedbush Securities in downtown Los Angeles who owns the stock. "It's a different company from a year ago, with no buyout hype going on."

Medco's revenues and profits primarily reflect royalties from the company's drug Adenocard, used to calm fast-beating hearts, said Feldman.

Additionaly, Feldman pointed at a February recommendation, issued by Kemper Securities Group, that called Medco "a strong buy . . . a very attractive high-risk speculation," based upon estimated fiscal 1992 earnings of $26.6 million or $3 a share. The co-author of the report, Kemper Securities analyst John Boettiger (formerly of defunct brokerage house Rotan Mosle), has been a long-time Medco fan.

Feldman's fellow broker, Mark Schwartz, expressed confidence in Medco's new president, Prestayko, who has a track record of 15 years in the pharmaceutical industry, most recently as vice president of research and development for Fujisawa U.S.A in Chicago, after teaching for eight years at Baylor College of Medicine in Houston.

"Prestayko is a real positive," said Schwartz. "Mosk was good for his level, but the company grew beyond his abilities."

He added, "There are rumors that Adenoscan is going to get approval from the FDA pretty soon."

In a telephone interview, Baylor College Pharmacology Department Chairman Harris Busch remembered Prestakyo as a first-class laboratory researcher, whose papers received excellent peer reviews. In the field of gene technology, "his work is still referred to," said Busch.

But bears said last week Medco stock is getting goosed by the same old stories that have passed around before, those of a fantastic future of big royalties from the super-drug Adenoscan.

One short trader said that the Kemper Securities research reports, authored by analyst Boettiger, are finding a new audience among clients of the Kemper Securities family of five brokerage houses, which includes Bateman Eichler, Hill Richards Inc., here in Los Angeles. "My guess is that this guy Boettiger, now over at Kemper, has found a whole new crew of idiots to buy the stock," said Fritz Garrette, Long Island short trader. "Eventually this stock will fall."

Kingfish of the short traders, Joe Feshbach of the Palo Alto-based Feshbach Bros., an investment firm, "It will take more than a minor miracle for the fundamentals on this company to support the price."

The bears point out that Medco has failed in a bid for a U.S. patent on Adenoscan, and since the drug is derived from adenosine, a substance that occurs naturally in the human body, anybody can make the stuff. Too, there is another drug, dipyridamole, that may accomplish the same ends as Adenoscan.

But Medco board member Sanford Hillsberg, of the Westside law firm Troy Gould, said last week that Medco will continue to seek a patent and, in any event, other federal laws would extend to Medco a three-year "exclusive" period for selling Adenoscan, even without a patent.

Said Hillsberg, "There are few high-tech or biotech companies that can actually make money, and we are. And we hope to get a decision in the not-too-distant future from the FDA and the marketing of Adenoscan."

Then the tug-of-war can start anew.