The money to be made in biotech stocks over the next year willcome from established but lesser-known companies, not thetop-tier stocks, according to New York investor David Blech.

While many Wall Street analysts have been recommending thatinvestors head for safety in companies with earnings, such asAmgen Inc. and Genzyme Corp., Blech continues to go his ownway. Not coincidentally, he holds major positions in most of thestocks he recommended in an interview with BioWorld.

"While the market will be much more of a show-me market,these stocks have evolved and are ready to blossom," he said."I'm much more comfortable now than I was a year and a halfago, when they had no money in the kitty.

"So while I'm dismayed that the institutional community isbuying smokestack America right now, I think the trend backto growth stocks and pharmaceutical issues will ultimatelyreturn," said Blech. Given how far prices have fallen, he added,the risk in the secondary stocks has been dampened.

Blech's "less-speculative" recommendations include RibiImmunoChem Research Inc., Bio-Technology General Corp.,Ecogen Inc. and Liposome Technology Inc. These are among his"fallen angels" -- companies he considered to be basicallysound despite falling on hard times before he invested.

"Ribi is a good value at a $100 million market cap," he said. "It'sunusual to get a company with a drug in Phase III trials(Melacine to treat melanoma) at that market cap. Thecompany's septic shock compound is a real sleeper, and itsadjuvants will become a cash cow eventually. You get all thatfor a $100 million market cap and $20 million in cash." His one-year price target is $13 a share.

Bio-Technology General has a larger market cap, but it also hassix products in sight of approvals. "Ultimately, we will see aBiogen-type of cash flow from royalties on BTG's human,porcine and bovine growth hormone products," Blech said. "Thecompany will actively seek small acquisition opportunities tobeef up its pipeline. We're also likely to see major validatingjoint ventures in the next three to six months." His price targetis $14.

Ecogen has done a spate of acquisitions, adding nematodes,pheromones and products to treat powdery mildew to itsBacillus thuringiensis core. The company is about to do an off-balance sheet financing to pay for the development of theseproducts. Blech sees the stock at $16 to $18 in a year."Compared to some of the pharmaceutical R&D partnerships,these products are more advanced and a safer investment," hesaid.

"Liposome Technology has about $65 million in the bank, isentering Phase III trials for amphotericin and Phase II inStealth doxorubicin," Blech said. "It's an unencumberedcompany, with no lousy corporate deals overhanging it. Andthere's no risk that the company will need further funds." Hisprice target is $22 to $24.

Blech also likes two companies in which he holds no shares:Celgene Corp. (NASDAQ:CELG), which is developing chiraltechnology, and Somatix Therapy Corp. (NASDAQ:SOMA), a genetherapy company.

His more speculative recommendations, again from his ownportfolio, are NeoRx Corp., with a one-year target of $7, andPharmatec Inc., pegged at $6 to $7.

NeoRx, developing monoclonal antibodies and imaging agents,hopes within the next few months to complete a deal that willresolve certain manufacturing issues and provide a majorcorporate partner, and to resolve some overhanging litigation,Blech said.

Pharmatec, originally focused on drug delivery across theblood-brain barrier, will complete its announced mergers withPharmos and Xenon shortly, giving it one product in the clinicand a second about to begin trials in Israel, he said. Acompound in animal trials has shown efficacy in trauma andhead injuries.

Meanwhile, Blech sees no fallen angels to pick up. "Except forthe companies that are bleeding, like Centocor, there aren'tmany companies in deep trouble," he said.

Blech bought into many of his fallen angels when their stockswere selling at cash value Today, companies selling at similarprices don't need him; they all have money in the bank.

Blech is focused on putting together new companies. Workingwith Avalon Ventures, he completed in March the largest start-up financing in biotech history for Ariad Pharmaceuticals Inc.,and now is putting the finishing touches on two more start-ups:a device company and a biotech company.

-- Karen Bernstein BioWorld Staff

(c) 1997 American Health Consultants. All rights reserved.