What could a loss-ridden small company hope to accomplish in just seven days? In the case of Choice Drug Systems, plenty: It ousted management and installed a new one along with a reconstituted board. Then it announced quarterly operating earnings that showed the company back in the black for the first time in two years--and settled a $3.4 million government complaint involving Medicare reimbursement claims.

Result: People who have gotten wind of the lightning-speed moves since Oct. 17 at Choice Drug have snapped up shares, now trading at 31/2. a share.

"I think the stock is poised for a big runup," says Ray Wood, an analyst at Anderson & Strudwick. Choice provides drugs and related pharmaceutical services to nursing homes, HMOs, and correctional institutions. It also is in the mail-order-drug business and manages hospital pharmacies.

But there is more to the story than just a plain turnaround. "I know for a fact that at least one big pharmaceutical company wants to acquire Choice and initiated talks to do so," says a New York money manager. And another health-care company, he says, wants to buy a 25% stake and then possibly do a merger later on. Choice Drug's new chairman, president, and CEO, Frank Mandelbaum, declined

comment.

The money manager notes that Merck, Eli Lily, and Beverly Enterprises acquired companies in the drug distribution business at 1.2 to 1.3 times sales. Based on such valuation, Choice is worth about 8 a share. He expects that a deal--or word about either a buyout or purchase of a big equity stake--will more than likely be announced sometime over the next three months.

Analyst Wood agrees that Choice is a sitting buyout target because of its currently depressed stock price. Despite sales of about $55 million, Choice has a market capitalization of just $18 million, based on its 6 million shares outstanding. The company's snapback, he says, adds to its allure. Choice Drug will be the subject of a takeover, he concludes, because of the unabated consolidation in the industry.

HOW THE STOCK  STACKS UP
              DOSE    RUSSELL
                      2000
      
      P/E
      RATIO   10.8    18.4
      YIELD   0       1.5%
      PRICE
      CHANGE, 13%     -3.1%
      JAN. 1-OCT. 25
      DATA: BLOOMBERG FINANCIAL MARKETS
      
      
ON THE MEND
      
      EARNINGS
      PER SHARE
      1996 Est.
         40 cents-50 cents
      1995 Est.
         4 cents
      1994
      -14 cents
      1993
      -26 cents
      1992
      31 cents
      CHOICE DRUG (DOSE)
      STOCK PRICE
      WEEKLY CLOSE
      JUNE 6
      1994
      OCT. 24
      G DOLLARS
      FISCAL YEARS END FEB.
      DATA: BLOOMBERG FINANCIAL MARKETS, BUSINESS WEEK
      
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