Companies whose stocks were bludgeoned by the shutdown of D.Blech & Co. last week seemed to stabilize late Friday followingJosepthal Lyon & Ross's decision to purchase the accounts and salesforce of the struggling New York investment firm which likely willdisband.Eleven stocks in D. Blech's portfolio dropped an average 36 percent inunusually heavy trading Thursday. Eight of those stocks continueddownward Friday, but the descent was slowed. The same stocks, as agroup, were down only an average of 5.2 percent Friday.The stocks lost $168 million in market capitalization Thursday and theeight companies that continued declining lost another $15.5 millionFriday.Ecogen Inc., of Langhorne, Pa., and California-based La JollaPharmaceutical Co. staged the biggest rallies, gaining 10 percentFriday. Ecogen increased 37 cents to close at $4.31, and La Jollagained 25 cents, closing at $2.87.The only other gainer Friday was Procept Inc., of Cambridge, Mass.,which was up 25 cents to $3.75, a 7 percent increase. (For more onstocks, see the chart on p. 5.)D. Blech had suspended operations as a market maker Thursday afterits capital reserves dropped below minimum federal requirements. As aresult, Bear Stearns & Co., of New York, withdrew support for thecompany's transactions and removed D. Blech from NASDAQ'sAutomated Confirmation Transaction trading system.Scott Weisman, Josephthal's director of investment, said his firm didnot buy D. Blech's inventory of stocks. "We bought the rights toservice accounts held by D. Blech at Bear Stearns & Co."Steve Ross, D. Blech's president and chief operating officer, said thedeal with Josephthal involved acquisition of his company's customeraccounts, leaseholds and offices."We are preparing to operate normally," he said. "We'll be up andoperating fully Monday morning."D. Blech, the company, "will be disbanding over a period of time,"Ross said, adding that David Blech, himself, "probably will go backinto the venture capital business."A source told BioWorld that Blech informed NASDAQ officials Fridayhis company was undercapitalized and would only be doing liquidatingtrades. Rich Myers, a NASDAQ spokesman, said he could notcomment on that information.Myers said, "I can only tell you that the firm Thursday voluntarilyceased doing business because they could not demonstrate compliancewith the SEC's net capital requirements. For a market making firm theminimum is $100,000 [in cash or securities.]"Weisman said the Josephthal-Blech transaction, completed Fridaymorning, was done quickly to try to stabilize the accounts and brokersat Blech.He said Josephthal has offered positions to all D. Blech employees andexpects to add 150 account executives.The move by Josephthal to acquire D. Blech's accounts was natural,Weisman said. "We have made market in some of these accounts," heobserved, "and we are currently making market on the companies[Blech] took public."Josephthal Plans More Conservative StrategyHe said Josephthal's strategy in supporting initial public offerings(IPOs) of small biotechnology companies will be a "little bit moreconservative" than David Blech's. "We're looking at the transactions he had in progress," Weisman said."We have been strong in the biotechnology industry. That's why wewere interested in this transaction with Blech."David Blech earned the reputation of backing start-up biotechnologycompanies when no one else would. Since September 1993, hiscompany has expanded its investment banking business, underwritingseven IPOs and two follow-on offerings (Texas Biotechnology, IncytePharmaceuticals Inc., Advanced Surgical Inc., MicroProbe Corp.,HemaSure Inc., Procept Inc., BioSepra Inc., DNA Plant TechnologyCorp. and Envirogen Inc.)By April 19, that group of nine companies underwritten by Blech'sfirm had dropped an average of 24 percent from the offering prices.Market analysts speculated that Blech's liquidity crisis last week waslinked to the fact that his assets were tied up in biotechnology stocksthat have been losing value steadily.David Stone, of Cowan & Co. in Boston, said Blech's problems don'tnecessarily reflect those of the biotechnology industry in general."The Blech firm was closer to the edge of the envelope in terms of howsmall and early-stage a company could be to go public," Stone said."Companies ended up with Blech when others had turned them down.This is a risky business. [Blech's troubles] are another reminder of thechanging circumstances the industry is in; that is the constrainedconditions for raising funds and capital. The weakest companies willgo out of business."Matthew Geller, of Oppenheimer & Co. in New York, said one of thelessons to be learned from Blech's problems is "try to invest incompanies a little further along. The focus should be on helpingcompanies that are already listed. There is always plenty of time to gopublic. It's hard to bring out a new company and it's very hard to takea concept public now."Damage ControlSome Blech-underwritten companies issued press releases Friday to tryto recoup investor confidence.For example, Guilford Pharmaceuticals, of Baltimore, Md., whichdropped 46 percent Thursday and Friday, said it expected that D. Blechwould not be able to exercise its over-allotment option to purchasemore than 280,000 shares from Guilford's June IPO.Said CEO Craig Smith, "Our current financial position is not materiallyaffected by this development and allows us to continue our researchand development activities and our plans to commission amanufacturing capability for our lead product in early 1995. Wecontinue to believe our business plan remains on track."Among the losers in D. Blech's tumble was its New York publicrelation's firm, Middleberg and Associates, which was told Fridaymorning it no longer had a client. A Middleberg spokeswoman referredall calls about D. Blech to Josephthal. n

-- Charles Craig And Jim Shrines

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