By Debbie Strickland

Centocor Inc. is seeking up to $40 million from an initial public offering that will spin off its diagnostics business, Centocor Diagnostics Inc.

The underwriters are Morgan Stanley Dean Witter and Credit Suisse First Boston, both of New York.

There are several blanks in the registration statement filed with the Securities and Exchange Commission, among them the number of proposed shares in the offer and the assumed price per share.

After the offering, though, Centocor, of Malvern, Pa., said it will still have voting control of at least 80 percent in the new company.

Centocor's shares (NASDAQ:CNTO) closed Friday at $50, down $2.25.

"I think it's a good move," said analyst David Crossen of Montgomery Securities, in San Francisco. Revenues and profits from Centocor's diagnostics business are "very small compared to their ReoPro sales, and yet if you get a downturn [in diagnostics] it does affect the stock price."

ReoPro is Centocor's FDA-approved monoclonal antibody-based inhibitor of platelet aggregation. Partnered with Eli Lilly and Co., of Indianapolis, the drug is expected to generate sales of between $230 million and $250 million this year.

Centocor's cancer-dominated diagnostics business meanwhile has seen falling revenues and profits in recent years.

Sales revenue totaled $37.6 million in 1996, down from $40.2 million in 1995. For the first three quarters of 1997, sales totaled $24.2 million, a decrease from $28.6 million for the comparable 1996 period.

Net income also has been sliding, from $7.7 million in 1995 to $5.3 million in 1996. In the first nine months of 1997, the business netted $2.9 million, down from $3.8 million in the year-ago period.

Underlying these results is a shift in the company's sales mix from completed kits to components for automated systems and bulk reagent sales, resulting in average unit price declines.

The IPO, said Crossen, signifies Centocor "must be very confident" the diagnostics business will rebound in the next couple of years.

"If the business recovers well and the stock price then goes up, they're at least in a position . . . to maybe divest themselves of more of the company," said Crossen. "It gives [Centocor] more options.

"If they can maximize the value of the business and then focus [Centocor] on opportunities on the therapeutic side, that's probably something that could improve their valuation."

Besides, Crossen added, "I'm sure they can use the cash."

Centocor Diagnostics is "a reasonably good business" in the highly competitive diagnostics arena, the analyst said.

About $20 million of the public offering's proceeds will be used over the course of four years for capital expenditures related to Centocor Diagnostics' cardiovascular diagnostic program.

The company's lead development-stage project is the P-Selectin Profile, a test that could, among other things, be used to identify patients who could benefit from Centocor's ReoPro or similar drugs.

The P-Selectin point-of-care cardiovascular test could allow emergency room physicians to rapidly identify patients suffering acute coronary syndrome (ACS) and to determine which ACS patients are having heart attacks and which are experiencing unstable angina.

The test measures the status of the P-selectin protein both on the platelet membrane and in blood plasma as a method of assessing platelet activation, an early indicator of ACS.

As a complement to existing electrocardiogram and cardiac enzyme tests, the P-Selectin Profile could reduce the costs of unnecessary testing and admission of patients not suffering ACS.

The worldwide market for in vitro cardiovascular diagnostics is about $1 billion.

Centocor Diagnostics currently manufactures and sells an oncology line of monoclonal antibody-based in vitro tests, components and reagents. Centocor's present business is dominated by products commercialized in the 1980s. Three of the products — CA 15-3 for breast cancer, CA 19-9 for pancreatic cancer, and CA 125 II for ovarian cancer — account for more than 85 percent of revenues. *

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