By Randall Osborne

SAN FRANCISCO — As the biotechnology industry matures, it's attracting a bigger number of general investors who are not satisfied with putting their money on promises. They're demanding better performance from specific companies, carefully chosen for their revenue potential.

That was the word from Rachel Leheny, managing director of research and biotech analyst for Hambrecht & Quist, who provided an industry overview at the close of the 16th Annual Hambrecht & Quist Healthcare Conference here.

"I stood up here last year and said data was going to be king," Leheny said. "And in fact data was king; we saw a lot of clinical trial development. However, at mid-year, 90 percent of the trials had failed."

Enough of them succeeded by the second half of 1997 that investors were able to make money by shrewdly selecting stocks. In the year ahead, they will be doing more of that, Leheny said — and they will insist on solid evidence of profitability before they put their cash down.

"People are going to ask, 'Where's the return? Why should I invest in the stock now?'" she said. "Analysts are going to start earning their money."

All eyes will be focused on the bottom lines: revenues and earnings. "This is a first for the biotech sector," she said, and predicted it will put "a lot of strain" on some companies. "The market will probably punish those companies that don't . . . perform on the earnings they promised," Leheny said.

She named the following as her investment choices for the coming year:

* Incyte Pharmaceuticals Inc., of Palo Alto, Calif., a genomics company. "A lot of folks have said to me, 'Hasn't it gotten expensive?'" Leheny said. "I think those people who have taken the time to look at the story agree this is a platform. The company has set up a platform, and they are going to be the dominant player in this space."

* SangStat Medical Corp., of Menlo Park, Calif., which this month reported positive preliminary results from a double-blinded trial of Thymoglobulin, an anti-T cell polyclonal antibody licensed from Pasteur Merieux Connaught, of Lyon, France. The kidney transplant trial compared SangStat's product to Atgam, made by Pharmacia & Upjohn Inc., of Kalamazoo, Mich.

SangStat and Gensia Sicor Inc., of San Diego, are gearing up for a U.S. commercial launch, pending regulatory approval, of SangStat's cyclosporine product, with the bulk drug to be supplied by Gensia Sicor.

* ArQule Inc., of Medford, Mass. "They've had a tough week based on some questions about earnings," Leheny said. "It's quite a profitable in its services area, which is combinatorial chemistry. Most importantly, they have seven pharmaceutical partners that have guaranteed over $350 million in revenues over the next few years. That's just spectacular."

Two of the partners are expected to file investigational drug applications with the FDA this year, and ArQule has 10 products in preclinical testing. "This is a company that's firing on all cylinders, and I highly recommend it," Leheny said.

* BioChem Pharma Inc., of Laval, Quebec, which Leheny said has "one of the highest quality of earnings" available to investors.

* Creative Biomolecules Inc. (CBM), of Hopkinton, Mass., which is expected to release positive data on March 22 from a trial of its bone morphogenic protein, OP-1, which is being investigated as a bone rebuilder and as a treatment for stroke. OP-1 stands for osteogenic protein.

CBM's partner, Stryker Biotech, of Natick, Mass. — a division of Stryker Corp., of Kalamazoo, Mich. — estimates the market for the drug at $500 million to $1.5 billion, Leheny said. (See BioWorld Today, June 9, 1997, p. 1.) *