Birtcher Is Feeling Better, Thanks

Even the most bullish health-care investors have just about given up on Birtcher Medical Systems. After all, its stock has collapsed from 20 a share at the beginning of the year to 6 3/8. But some pros are taking the opposite stance by snapping up Birtcher shares. They argue that the reason behind the stock's gigantic decline has just been resolved.

On Oct. 19, Pfizer dropped its lawsuit against Birtcher that challenged the validity of Birtcher's patent on its Argon Beam coagulator device, used in laparoscopic surgery. The suit, filed in March, was the main cause for the sharp drop in Birtcher's stock, say these pros. Pfizer's Valleylab subsidiary has held a patent for a gas coagulation device since 1977.

Pfizer agreed to drop its lawsuit in return for a licensing pact to sell Birtcher's coagulation technology. Valleylab will pay Birtcher a onetime fee of $2.5 million, plus a 5% royalty on sales of its gas coagulation device over the life of Birtcher's patent, which expires in 2005.

That settlement failed to attract investor attention, and the stock hardly budged. But Evan Sturza, editor of Sturza's Medical Investment Letter, believes that once the Street wakes up to the settlement, Birtcher's stock will zoom. "If the Pfizer suit maimed Birtcher's stock, shouldn't a highly favorable settlement push the stock higher?" asks Sturza. Current earnings estimates for 1993 of 40 cents a share are too low, he says. Sturza expects earnings to jump to 55 this year, 70 cents next year, and 93 cents in 1994. His target for the stock: 12 in six months.