Cetus May Have A Surprise In Store

Biotech stocks have been hit by profit-taking of late as investors worry that the high-flying group may be vulnerable in a market downturn. Even so, Cetus, a major developer of recombinant-DNA drugs to fight cancers and other diseases, has resumed its upswing.

After jumping from 7 in January to 17 in early April, the stock faltered, dropping to 13 1/2 by late April. But so far in May, Cetus has become active again, rising to nearly 15. What gives?

"A positive-event surprise" may emerge in the next few weeks or months, says Joe Edelson, an analyst at Prudential Securities. He raises two possibilities: First, the Food & Drug Administration may finally approve Cetus' Proleukin interleukin-2 drug to treat advanced kidney cancer. (The FDA turned it down last year, though the drug is already sold in Europe.) Second, Cetus may announce a "strategic alliance" with a major pharmaceutical company. It already has two separate joint ventures--with Perkin-Elmer and with Hoffmann-La Roche, which has bought a 3% stake in Cetus.

Whispers are that a new alliance will be completed with a major Japanese drug company. That venture, according to one investor, may involve the Japanese buying a stake in Cetus, similar to the Hoffmann-La Roche arrangement. "There are also rumors of a buyout by this unidentified Japanese company," says Jim McCamant, editor of Medical Technology Stock Letter. Cetus traded as high as 42 in 1986--which hasn't been forgotten by takeover investors. Cetus declined comment.

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