Centocor: Not Yet In Recovery

Although most biotech stocks have been badly beaten up over the past two years, Centocor has managed to stay aloft at around 12, where it has been trading since December. Of late, Centocor seems to have gotten a shot in the arm, which gave analysts reason to raise their estimates. "But watch out," warns investment adviser Evan Sturza. He expects the stock to skid to 7.

Sturza, editor of Sturza's Medical Investment Letter, notes that analysts' renewed optimism was due to the recent vote by a Food & Drug Administration panel to approve Centocor's

ReoPro, an experimental drug to prevent blood clots during coronary angioplasty surgery. Sturza contends that, contrary to some analysts' expectations, the FDA move won't necessarily produce earnings for Centocor, which has been in the red for the past four years. He says that the approval is "limited and conditional" and that Centocor will have to complete further studies to validate its claim on the efficacy of the drug. These costly studies, Sturza says, will prevent Centocor from becoming profitable next year.

According to Sturza, the bulls' estimates that it will make 33 cents to 83 cents a share in 1995 are "just wrong." He notes that Centocor's marketing pact with Eli Lilly stipulates that each gets 50% of Centocor's earnings. So whatever Centocor will make from ReoPro will have to be split with Lilly, anyway, says Sturza, who sees Centocor continuing to post losses. Centocor CEO David Holveck contends, however, that Sturza is way off. Holveck sees Centocor making money next year.

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